The journalist who exposed Claudine Gay’s plagiarism bet was set to win $1400 in crypto via a Polymarket contract if she resigned by year’s end.
Chris Brunet lost money because she didn’t quit fast enough but he still hopes to monetize his work by trading on prediction markets.
The ethics of this aren’t entirely clear, but it’s much better if you disclose it, says a journalism professor.
Betting on your own story as a journalist probably doesn’t constitute insider trading, says a securities lawyer.
Chris Brunet knew he had a big story, so he bet it would make a big impact.
The independent investigative journalist uncovered now-former Harvard President Claudine Gay’s history of plagiarism in December 2023 and her data fabrication the year before. For many reporters, publishing such explosive exposés would be its own reward, but Brunet wanted to profit from the fallout of his findings.
Late last month, he went to Polymarket, the largest prediction market platform, and made a bet. He stood to win $1,400 worth of cryptocurrency if Gay was longer be president of Harvard at the end of the year.
Close, but no cigar. In the end, Gay didn’t step down as Harvard President by the end of 2023, as the prediction market asked, but rather a few days into the new year. While he had been directionally correct, Brunet lost.
“I’ve never made money on prediction markets. I’m down. It’s a hobby rather than something I actually make money on,” Brunet said in an interview with CoinDesk. “In the past, when I wrote articles, I used to make firm predictions. But I got fooled so many times with prediction markets, so I’m very humble.”
By his own admission, he’s a better journalist than trader. Even so, Brunet said he’d still love to monetize his otherwise impactful work by trading on it.
“The only reason I don’t bet big on Polymarket right now is that I don’t have a lot of money. So I can’t really justify putting a huge bankroll in Polymarket,” he told CoinDesk. “If I did have a huge bankroll, and there were markets about my ongoing investigations, I certainly would be betting on that.”
If, like Brunet, you’re bold enough to write something that might lead to an arrest and federal charges – he was first to name crypto trader Avraham Eisenberg as the alleged exploiter of Mango Markets, which led to Eisenberg’s arrest in Puerto Rico – or the resignation of one of the most powerful figures in academia, why not enjoy some financial upside?
After all, if prediction markets are to become, as their proponents claim, the ultimate arbiters of truth because they harness the power of the crowd, giving people a chance to put their money where their mouths are, they will need somewhere to start.
There’s also an argument that prediction market journalism isn’t all that different from what activist short sellers do: use a process similar to investigative journalism to find dirt on a company, take a short position and then publish the results for the market to digest.
A future, prediction market-oriented media could even, as Scott Alexander of Slate Star Codex fame writes, do away with the industry cancer of fake news and clickbait.
“In a prediction market, once you’re wrong a couple of times, traders will stop updating on your reports and you’ll lose most of your power to move the market,” he wrote.
A front-running 1980s journalist
Yet, lingering on Brunet’s mind is whether this is all ethical.
“One big question I have, still somewhat unresolved, is the ethics of having a personal stake in the outcome of your story, akin to insider trading, or knowing information before the markets do,” he said.
Can you place a prediction market bet on something you’re so closely invested in? Could Gay, or the Harvard Corporation board, hypothetically trade on Polymarket a day before she resigned?
“It strikes me that betting on the outcome of one’s stories presents a conflict of interest. The journalist now has a stake beyond informing the public or serving the public interest,” Jane E. Kirtley, a professor of media ethics and law at the University of Minnesota’s Hubbard School of Journalism, told CoinDesk in an email interview.
Kirtley says she finds it troubling because it “undermines the compact that journalists have with the public: acting independently and putting the interests of the public first and foremost.”
Kirtley brings up the 1980s-era case of Foster Winans, a former Wall Street Journal reporter who leaked the contents of upcoming, potentially market-moving “Heard on the Street” columns to a stockbroker.
“I think from an ethical perspective, it is difficult to argue that Winans’ conduct was consistent with ethical norms in journalism,” she said. “He had a personal financial interest in the impact of the ‘Heard on the Street’ columns he wrote, and he did not disclose that to his readers or his employer.”
At a minimum, Kirtley said, journalists who bet on the outcome of their stories “should be transparent about it — certainly with the journalist’s employer (if any), and also with the public.”
For his part, Brunet is quite clear with his readers about exactly what he’s doing. “I don’t believe ‘unbiased journalism’ exists, hence why the tagline of my Substack is ”opinionated investigative journalism,'” he posted on X in December, while disclosing exactly how much he’d profit should Gay have been fired before the end of 2023.
“I wear my bias on my sleeve,” he continued.
What does the SEC think?
And how about the legality? That’s where it gets complicated.
Winans, in the eyes of the court, had breached the duty of confidentiality he owed the WSJ by front-running its daily publication schedule, finding him and his co-conspirators guilty of mail and wire fraud.
The information was still confidential until it was published, the court found.
(This did raise significant First Amendment concerns at the time, and the Reporters Committee for Freedom of the Press, where Kirtley was a director, was part of an amicus brief arguing these issues).
For prediction markets, things are more murky.
“There is no clear answer as to whether betting on prediction markets with inside information constitutes insider trading under U.S. law,” Florida-based digital assets attorney John Montague told CoinDesk in an interview.
“It may depend on whether prediction markets are considered ‘securities’ for the purposes of insider trading law, and whether the person betting on the prediction market is in possession of material, nonpublic information and is using it for personal benefit,” Montague continued.
Montague said the current statute on the books (15 U.S.C. § 78u-1) imposes civil penalties for insider trading involving securities.
But it’s unclear if prediction markets are classified as securities under this law, Montague says, and thus under the purview of the U.S. Securities and Exchange Commission (which has signaled it deems most crypto assets to be securities). If so, using insider information in prediction markets could constitute insider trading.
“I could foresee a situation in which the SEC establishes such marketplaces as unregistered securities and thus expands the SEC’s jurisdiction to prediction markets at which such time some of the insider trading penalties could be available,” he said.
…or does someone else have jurisdiction?
For its part, Polymarket, which runs on the Polygon blockchain network and settles bets in crypto, prohibits U.S. persons from using the platform and isn’t available in the country.
On Kalshi, which is registered with the U.S. Commodity Futures Trading Commission and settles in dollars, there is a prohibition to trade on material nonpublic information.
“There is currently no specific instance that I am aware of where the Commodity Futures Trading Commission has exerted its authority over insider trading specifically related to prediction markets. It is certainly a possibility that the CFTC could choose to do so in the future,” Montague added.
“Although no precedent exists yet, it is highly likely that prediction markets could fall within the CFTC’s jurisdiction, giving it the potential to regulate such activities under its mandate to combat fraud and manipulation,” he continued.
Kalshi also prohibits employees of data providers (ranging from the National Weather Service to Billboard magazine), which may have a slight lead on getting data before it becomes public, from trading.
It should also be noted that the CFTC only got powers in 2010 to pursue insider trading cases under the Dodd-Frank Act, which was meant to limit financial risk.
Prior to the act, the CFTC’s authority to regulate insider trading in commodities markets was limited, focusing mainly on its own personnel and those of exchanges, but Dodd-Frank expanded the regulator’s powers, allowing it to address a broader range of insider trading activities, including those involving use of confidential information.
Since then, the CFTC settled its first insider trading case in 2016 and its fourth in 2020. In comparison, the SEC brought 43 insider trading cases against 93 individuals in 2022.
Still a believer
Despite not making money so far with prediction markets, Brunet said he is still a believer in the idea of monetizing the wisdom of the crowd – the most accurate gauge of truth, according to proponents of prediction markets – and that it’s still early for the industry.
Losing bet aside, Brunet said his investigation into Gay has done wonders for his subscriber count – much more than his investigation into Mango Markets’ alleged exploiter.
“I got 300 subscribers from the Mango Markets story,” he said. “And in comparison, for the Harvard story, I went from 5,700 to 8,500.”
Brunet said he’s become “somewhat pigeonholed” after his success in reporting on academia.
“I almost wish I could return to writing about other topics. However, I receive many tips about academia, and my audience, which is largely academic, seems very interested in this area,” he continued.
When he eventually branches out, Brunet said, he plans to launch a Substack newsletter covering central bank digital currencies.
“We’re not approaching it from a right-wing conspiracy perspective, but rather from a standpoint advocating the ethos of decentralization, which contrasts with CBDCs,” he said. “We are highly critical of CBDCs, and there aren’t many publications specifically opposing them.”
