DOJ Says the Green Beret's Maduro Contracts Are Swaps Even Under the Sixth Circuit's Test

Federal prosecutors say contracts on the capture of Nicolás Maduro "are inherently economic" and so qualify as swaps, whatever two appeals courts have said about Kalshi's sports contracts. The question decides whether the first insider-trading prosecution over prediction-market trades survives, and argument is set for 7 October.

• In a letter filed on 30 September in United States v. Van Dyke, the US Attorney's Office for the Southern District of New York told Judge Margaret Garnett that the Venezuela contracts at issue "qualify as swaps because they are inherently economic and investors and institutions could have used them to hedge exposure to potential financial consequences"
• Prosecutors were answering two defence letters of 28 September that cited the Sixth Circuit's ruling and a second Ninth Circuit opinion as support for dismissing the indictment
• The government says those courts, in civil preemption cases, addressed "only sports event contracts" and do not bind the court in New York
• Master Sergeant Gannon Ken Van Dyke is charged with three Commodity Exchange Act counts, wire fraud and an unlawful monetary transaction over $33,934 of trades on Polymarket that allegedly made about $409,881; he has pleaded not guilty
• The filing does not call event contracts illegal in themselves; the CEA counts depend on their being swaps, the classification the CFTC has just sent the White House rules to settle

Prosecutors Answer the Defence's Run of Appellate Wins

The two-page letter, filed on Wednesday 30 September by Assistant US Attorneys Nicholas Chiuchiolo, Ryan Finkel and Juliana Murray for Deputy US Attorney Sean S. Buckley, replies to two letters Van Dyke's lawyers filed on 28 September. One cited the Ninth Circuit's 16 September decision in Blue Lake Rancheria v. Kalshi; the other cited the Sixth Circuit's 25 September decision in KalshiEX v. Schuler, which held that an event must be "inherently associated" with a financial consequence for a contract on it to be a swap, and warned that a broader reading "would ... expose countless Americans to potential criminal liability for partaking in even the most unsophisticated, off-DCM gambling activity".

The government's answer is that the defence "misstate[s] the courts' holdings". Neither circuit, it says, ruled on binary event contracts generally: both "addressed only sports event contracts, e.g., 'how many corner kicks will be taken in a soccer game'", and did so in civil litigation over whether federal law preempts state gambling regulation. It notes that the Third Circuit held sports event contracts are swaps, that the Ninth Circuit declined to find Kalshi's election contracts are not swaps, and that Blue Lake turned on the Indian Gaming Regulatory Act, not the swap definition.

Then the central argument: even "applying the Sixth and Ninth Circuits' narrow reading of the definition of swap", which the letter says there are compelling reasons not to do, the contracts in this case, "which involve major military action against Venezuela and the removal of a foreign head of state, qualify as swaps because they are inherently economic". Prosecutors will address the decisions at oral argument on Wednesday 7 October.

What the Indictment Charges

According to the indictment unsealed on 23 April, Van Dyke, a 38-year-old Special Forces soldier, helped plan Operation Absolute Resolve, the mission to capture Maduro. He opened a Polymarket account on 26 December 2025, connecting through a VPN exit node that geolocated to a foreign country, and in 13 trades between 27 December and 2 January bought about $33,934 of "YES" shares on markets including "Maduro out by ... January 31, 2026". He allegedly profited by about $409,881 and then tried to hide the proceeds.

The three Commodity Exchange Act (CEA) counts charge the use of confidential government information to "execute swap transactions in the form of binary event contracts", theft of that information, and fraud in connection with a swap. The CFTC has brought a parallel civil case.

In its 19 August opposition to the motion to dismiss, the government set out the economics it now relies on: investors exposed to Venezuelan sovereign debt or the state oil company's bonds might buy "yes" to hedge against intervention, and those positioned for regime change might buy "no". After the operation, it said, Venezuelan sovereign bonds rose 35% and the oil company's bonds 43%. The CFTC, in an amicus brief the court accepted over the defence's objection, warned that the defence's reading "would undermine the Commission's jurisdiction over a huge range of event contracts" and leave "no federal regulator" with oversight.

The Government Is Arguing Inside the Narrow Test, Not Against It

Prosecutors do not tell Judge Garnett that the Sixth and Ninth Circuits are wrong; they reserve that point and argue that the Venezuela contracts pass even the test those courts applied. That lets the court deny the motion without taking sides in a circuit split, but it carries a cost for the wider federal argument. If the swap definition turns on whether an event is "inherently economic", then contracts on a sovereign's oil and bonds may qualify while contracts on corner kicks may not. That is close to the line the defence and two appeals courts have drawn, and some distance from the position the CFTC appears to be taking in a proposed rule titled Further Definition of "Swap" to Include Event Contracts, whose text is not yet public.

"Illegal Swaps" Is the Wrong Shorthand for This Case

Some coverage has summarised the filing as the Justice Department calling binary event contracts illegal swaps. The letter does not say that. The charges do not allege that trading event contracts is unlawful, or that Polymarket defrauded its users in the way binary-options cases typically do. They allege misuse of classified information in connection with contracts the government says are swaps, which is what brings the CEA's insider-trading provisions into play. Nor were the trades on a regulated exchange: the indictment describes smart contracts on the Polygon blockchain, settled in a stablecoin and reached through a foreign VPN node. The CFTC's amicus brief recalls that its 2022 order against Polymarket's operator stated that event contracts, "each of which is composed of a pair of binary options, constitute swaps" that can be offered only on a registered exchange.

Either Answer on 7 October Will Be Used by Both Sides of the Industry

A ruling for Van Dyke would mean the CEA's insider-trading provisions do not reach a contract on a military operation, the gap the CFTC warned about and an argument for legislation. A ruling for the government would establish that at least some event contracts are swaps, which platforms would be likely to cite against the states, but only for contracts with a real economic link. Sports contracts, 73% of Kalshi's identified activity by ESMA's count, would be no closer to that status. The industry wants to be regulated as swaps when the question is state gambling law; this case shows what comes with that status when the question is insider trading.

Judge Garnett is not bound by the Sixth or Ninth Circuit, and the government has given her a way to rule without disagreeing with either. Whatever she decides, the prosecution has made the swap definition a criminal question as well as a regulatory one.