CFTC investigates Polymarket over $10 million fraud attack

The Commodity Futures Trading Commission (CFTC) has opened an investigation into Polymarket, the prediction market platform, instructing staff to preserve records tied to a fraud attack and other matters.

The probe follows an attempt by fraudsters to steal at least $10 million from Polymarket's US platform in February, the Wall Street Journal reported.

Scammers linked stolen debit cards to thousands of Polymarket US accounts, using them to place bets and withdraw the money to cards or accounts they controlled.

Checkout.com, the payment processor, at one point rejected more than 80% of incoming deposits as fraudulent, far above the roughly 1% considered typical across the industry.

When compliance staff raised concerns with chief executive Shayne Coplan, he told them to keep growing and pay a fine if regulators found out, according to people with knowledge of the situation, the Journal said.

Current and former employees described the response as typical of a broader push for growth at all costs.

Former federal prosecutors who spoke with the Journal said weak anti-money-laundering safeguards risk running afoul of federal statutes covering money laundering and illicit fund transfers.

Andrew Clifford, Polymarket's chief compliance officer, resigned in April after sending executives a report detailing some of the fraud issues.

Justin Hertzberg, chief executive of the company's US division, was later fired, while the heads of US regulation and anti-money-laundering also left.

Sullivan & Cromwell, the law firm hired to investigate, determined that Polymarket had acted in compliance with applicable regulations.

Seeking to clear a backlog of pending withdrawals created by the fraud surge, executives scrapped a policy requiring funds to be returned through the same payment method used for deposits.

Some staff warned at the time that the change could invite money laundering.

Former federal prosecutors who spoke with the Journal said weak anti-money-laundering safeguards risk violating federal statutes covering money laundering and illicit fund transfers.

The CFTC investigation adds to scrutiny of Polymarket as it seeks to expand its regulated US footprint following its return to the US market earlier this year.