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DOJ Labels Binary Event Contracts as Illegal Swaps in Green Beret Case

By jili tutorial · October 3, 2026

DOJ Labels Binary Event Contracts as Illegal Swaps in Green Beret Case

Overview of the Case

In a developing legal controversy that could reshape how U.S. authorities regulate prediction markets, the Department of Justice (DOJ) has taken a firm stance: binary event contracts — the core instruments of platforms like Polymarket — are legally “swaps” under federal commodities law. This position emerged in a Sept. 30, 2026, court filing responding to a motion to dismiss the indictment of U.S. Army Special Forces soldier Master Sgt. Gannon Ken Van Dyke. Van Dyke is accused of using classified military information to net $409,000 trading event contracts tied to the removal of Venezuelan President Nicolás Maduro.

This guide breaks down the key facts, legal arguments, and broader implications of a case that tests the boundaries of federal jurisdiction over prediction markets, the Commodity Exchange Act, and national security.

Background of the Indictment

Who Is Gannon Ken Van Dyke?

Master Sgt. Gannon Ken Van Dyke, 38, is a U.S. Army Special Forces soldier stationed in Fayetteville, North Carolina. He was indicted in April 2026 by a federal grand jury in the Southern District of New York. The charges stem from an alleged scheme in which Van Dyke used non-public, classified government information to trade binary event contracts on the prediction market Polymarket. Specifically, he is accused of buying shares tied to the question of when Venezuelan President Nicolás Maduro would be removed from power — a scenario linked to classified military planning.

What Are Binary Event Contracts?

A binary event contract is a derivative that pays a fixed amount (typically $1) if a specific event occurs, and $0 otherwise. Traders buy and sell these contracts based on their assessment of the probability of an outcome. For example, a contract paying $1 if “Maduro is removed by Dec. 31, 2026” might trade at $0.60, implying a 60% probability. Such contracts are traded on platforms like Polymarket, PredictIt, and Kalshi, which are regulated to varying degrees by the Commodity Futures Trading Commission (CFTC).

The Charges Against Van Dyke

Van Dyke faces five counts:

The core allegation: Van Dyke used his access to sensitive military secrets to trade on events that were not publicly known, thereby profiting illegally.

What Is a Swap Under U.S. Law?

Under the Commodity Exchange Act, a “swap” is broadly defined to include any agreement, contract, or transaction that is a “put, call, cap, floor, collar, or similar option” based on the value of one or more underlying assets, rates, indices, or events. The CFTC has jurisdiction over swaps and can enforce anti-fraud and anti-manipulation rules. Prediction market contracts — often settled on binary outcomes — have been a gray area.

The Defense’s Argument

Attorneys for Van Dyke moved to dismiss the indictment, arguing that the event contracts he traded were not swaps under federal law. They contended that the government was pursuing “unprecedented legal action,” testing “new ideas and hypotheses about whether conduct is criminal.” The defense pointed to earlier federal court rulings in the Sixth and Ninth Circuits that held that binary event contracts on CFTC-regulated exchanges “are likely not swaps.” They argued that prediction markets were never intended to be included in the CFTC’s regulatory regime for swaps.

The DOJ’s Counterargument

The DOJ strongly rejected that position. In a Sept. 30 letter to Judge Margaret Garnett, federal prosecutors led by Deputy U.S. Attorney Sean Buckley argued that prior rulings were limited in scope:

“Those decisions involve civil preemption issues that have no application here and involve sports event contracts having nothing to do with the swaps alleged in the Indictment, much less the adequacy of the Indictment’s allegations.”

The DOJ then drew a sharp distinction: the earlier cases discussed sports event contracts (e.g., “Will Team A beat Team B?”), which the DOJ concedes may not be swaps. But the contracts in Van Dyke’s case — tied to major military action against Venezuela and the removal of a foreign head of state — are fundamentally different. The prosecutors argued:

“Even applying the Sixth and Ninth Circuits’ narrow reading … the event contracts in this case … qualify as swaps because they are inherently economic and investors and institutions could have used them to hedge exposure to potential financial consequences.”

In other words, a contract on Maduro’s removal has clear economic utility: a multinational corporation with Venezuelan assets, for example, could use such a contract to hedge political risk. Sports contracts, by contrast, lack that economic function.

Example: Hedging with a Binary Event Contract

Imagine an oil company with operations in Venezuela. If Maduro is removed, the political environment may shift, affecting oil contracts and sanctions. The company could buy a binary contract that pays $1 if Maduro remains in power, effectively hedging against the risk of regime change disruption. This economic purpose, the DOJ contends, makes the contract a swap.

Does the CFTC Have Jurisdiction Over These Markets?

The defense’s motion challenges whether prediction market contracts fall under the CFTC’s authority at all. If the court agrees with the DOJ that these contracts are swaps, then the CFTC has robust enforcement power — and using classified information to trade them could violate anti-fraud provisions of the CEA. If the court sides with the defense, the DOJ may be forced to rely on other charges (like wire fraud) or the case could be dismissed entirely.

What Precedent Will This Set?

The outcome will influence whether the DOJ and CFTC can aggressively police prediction markets for insider trading. If the court adopts the DOJ’s reasoning, any binary contract with an “economic” or hedging purpose could become a swap — opening the door to regulation of a vast range of event contracts. Conversely, a ruling for the defense would limit the government’s reach, potentially protecting prediction market operators and traders from federal commodities enforcement.

Court Schedule and Next Steps

Oral Arguments Scheduled

Judge Margaret Garnett is set to hear oral arguments from both sides on Oct. 7, 2026, in the Thurgood Marshall United States Courthouse in New York City. The hearing will focus on the motion to dismiss, with both the government and defense making their case.

Potential Outcomes

Broader Implications for Prediction Markets

Industry Uncertainty

The case has sent ripples through the prediction market industry. Platforms like Polymarket, which rely on binary event contracts, now face the risk that their core instruments could be reclassified as swaps — triggering CFTC registration, reporting, and compliance requirements that many small operators cannot meet.

Distinction Between Sports and Geopolitical Contracts

The DOJ’s argument creates a potential two-tier system: sports event contracts may remain outside the swaps definition, while political, military, and economic contracts may be swept in. This could force prediction market platforms to segment their offerings and seek CFTC approvals for certain types of contracts.

National Security Angle

Perhaps the most striking element of this case is its national security dimension. A U.S. Army Special Forces soldier is accused of using classified intelligence to trade on a public prediction market. If even a single individual could exploit sensitive information to profit, it raises concerns about the security of government secrets and the ability of prediction markets to be gamed by insiders.

Charges and Penalties Summary

ChargeMaximum Penalty
Violation of Commodity Exchange Act (3 counts)10 years per count
Wire fraud (1 count)20 years
Unlawful monetary transaction (1 count)10 years

Van Dyke faces up to 60 years in prison if convicted on all counts.

Conclusion

The DOJ’s filing marks a significant legal moment for prediction markets. By explicitly classifying binary event contracts as swaps — at least for those with economic hedging value — the government is asserting broad authority over a rapidly growing sector. The court’s decision on the motion to dismiss will set the stage for either a trial centered on insider trading and national security, or a dismissal that could limit future prosecution of similar cases.

As Judge Garnett prepares to hear arguments, the outcome will be closely watched by legal experts, market participants, and national security officials alike. For now, the question remains: are binary event contracts swaps? The answer may define the future of prediction markets in the United States.