I mean, the thing is, insiders will disagree. Nobody has a crystal ball to predict the future perfectly.

Military operations go awry. Countries react in unexpected ways. Leaders change their minds.

And as a potential event gets closer, insider information changes. Different insiders have different sets of partial knowledge.

You don't even need scheming and tricking. Just regular reality is already complicated enough.

Matt Levine often says something like "insider trading is not about fairness, it's about theft." The problem isn't that it's less fair to some stock traders than others, and that stock trading should be some form of perfect gambling where everyone has an equal chance of success. Stock trading is inherently about exploiting information asymmetries — that is what all "non-insiders" are trying to do. But insider trading is wrong because it's effectively stealing confidential information from the company & shareholders, which is in violation of & conflict with the fiduciary responsibility that board members, executives, and employees generally have towards shareholders.

Conceptually, I think that is the right analogy to think about. Prediction markets "want" to be a more accurate source of information, just like stock markets, so from that lens "getting" information to be more accurate is good. When government officials are placing bets on prediction markets, though, it's a massive violation of operational security, and leaking confidential information. They probably think that they are acting anonymously, but it creates so many opportunities for unfriendly state actors to get information, especially if people do it consistently.

That also sounds easy enough to fake for some plausible deniability.

You can trade on non-public information if you obtain that information unintentionally. Now you have to be able to prove it’s unintentional if the question came up. A real experience example of this is if you work in an office building and your neighboring company, a public company, is being raided by the FBI. Can you use that information to take a position in the market? Yes, according to multiple attorneys we spoke with.

I bring this up because we assume the trading is coming from insiders but I wonder if the parties behind this have baked in a layer similar to my story above.

To close this back to your comment, and I don’t have an answer here: is knowing who the insiders are and acting on that a crime? If you did know and didn’t report them, are you breaking a law? Or worse, you reported it to the deaf ears of a regulator that are focused elsewhere or are under resourced to respond now?

How is there enough volume to cover the other side of the bet with these minutes-before trades?

In theory that is part of what was supposed to have been solved by CAT.

insiders would presumably be bigger trades that show high conviction about improbable events. An insider would wait until the last minute to take advantage of low prices of a market close to expiration.