Polymarket’s expansion into US stocks raises regulatory concerns

Polymarket has pushed into one of the most exclusive corners of finance: private company valuations. The prediction market platform launched contracts tied to unicorn milestones in May 2026, covering roughly 1,600 private companies with a combined valuation north of $5 trillion. The new contracts let users wager on outcomes like IPO timing, valuation thresholds, and secondary share activity for some of the world’s most prominent privately held companies. Resolution data for these markets comes exclusively from Nasdaq Private Market. The equity-linked markets are only available on Polymarket’s offshore platform, which US residents cannot access.

A regulated footprint with an offshore edge

Polymarket’s US operations run through QCX LLC, a CFTC-regulated subsidiary the company acquired in July 2025. That acquisition came three years after Polymarket settled with the CFTC for $1.4 million over previous unregistered activity.

The domestic platform already hosts prediction markets on public stock metrics, including S&P 500 daily direction and market cap rankings.

Legal experts have flagged that equity-tied contracts could qualify as security-based swaps, a classification that would pull them squarely into the SEC’s jurisdiction rather than the CFTC’s. Security-based swaps carry their own registration requirements, disclosure obligations, and anti-fraud provisions.

New York comes swinging

On September 24, 2026, New York Attorney General Letitia James and Governor Kathy Hochul filed a lawsuit accusing the platform of conducting illegal unlicensed gambling operations. That suit targets Polymarket’s sports contracts specifically.

The question of whether federal preemption shields CFTC-regulated platforms from state-level gambling statutes is far from settled. Even if Polymarket’s CFTC-regulated US platform is shielded from state gambling laws through federal preemption, the offshore platform hosting the equity contracts exists in a different legal universe. New York’s lawsuit could establish that prediction market operators with any US nexus face state enforcement regardless of where specific contracts are offered.

The democratization argument

Private company information is notoriously asymmetric. Employees, investors, and board members have access to material nonpublic information that could give them enormous advantages in prediction markets tied to company milestones. Public equity markets have decades of enforcement infrastructure designed to prevent exactly this kind of informational edge trading. Private company prediction markets have none of it.

What regulators are watching

If the SEC ultimately determines that these equity-linked contracts constitute security-based swaps, Polymarket would need to comply with an entirely different regulatory framework. That could mean registration as a security-based swap execution facility, mandatory reporting, and compliance with Regulation SCI for market infrastructure.

Kalshi and other prediction market operators have been expanding aggressively into financial event contracts. A definitive ruling on where equity-linked prediction markets fall in the regulatory hierarchy would set precedent for the entire industry.

For traders currently using the offshore platform to bet on unicorn milestones, the practical risk is that regulatory action could freeze markets, force contract unwinding, or change resolution terms with little warning. Polymarket settled with the CFTC once already.