Polymarket Says Its Markets Reveal The Truth. Its Ad Strategy Was To Have Influencers Fake Wins.

from the seems-bad dept

In theory, there’s a way to build a prediction market that actually provides valuable insight on issues through the wisdom of the crowds. But that’s not at all what we have with the current crop of prediction markets, mainly Kalshi and Polymarket, which seem to have leap-frogged FanDuel and DraftKings as the deservedly hated gambling apps that pretend not to be gambling apps. While we haven’t spent too much time talking about those markets here on Techdirt, we have mentioned some examples of where they are found to be distorting information, rather than revealing deeper insights.

But, really, if your entire marketing pitch is that you’re a tool for revealing truths, it should be existentially embarrassing for it to be revealed that your advertising strategy is to have influencers blatantly fake bets to pretend they had won, when they really would have lost. It’s like the opposite of a truth market. It’s false advertising.

A piece published over the weekend by the Wall Street Journal (whose publisher actually has a deal with Polymarket) is incredibly damning, suggesting pretty clearly that Polymarket and a crew of young influencers it has hired have engaged in outright fraud that both the FTC and the CFTC would go after, if either agency were inclined to act:

In his videos, George Makihara appears to have a lucrative side hustle making bets on Polymarket.

In January, the college student posted a video that showed him winning $100,000 on a wager that President Trump would publicly say the word “McDonald’s” that month.  

The bet was one of 145 that Makihara appeared to place on Polymarket’s website between January and mid-May, based on his videos—bets adding up to almost $410,000. 

But none of those bets were real, according to a Wall Street Journal investigation.

The basics of the scam are pretty straightforward: Polymarket hired one of those “influencer marketing” companies to round up college kids to make social media videos showing them winning bets on Polymarket. Except, it turns out that the bets shown in those videos aren’t real. They’re faked, using a fake version of Polymarket, with the clever domain name Poiymarket (that’s a lower case i rather than an l there). And, of course, none of the influencers disclosed they were being paid by Polymarket, let alone that the bets shown in the videos were made up.

This doesn’t seem to be a one-off case of a rogue influencer either. The WSJ found over 1,100 videos by multiple creators, and determined that in 70% of the videos, no actual bets were placed, even as the videos showed the influencers winning $1.9 million. Within that, one smaller segment of the videos used faked or outdated news coverage to pretend the influencers had won about a million dollars — when, the WSJ worked it out, those same bets would actually have lost $166,000 if anyone had actually placed them.

And according to the reporting, this isn’t just a case of the marketing firm Polymarket hired going too far. The article reports that Polymarket created the fake website and required the influencers send them all their videos for approval before posting:

Creators said they send the finished videos to Polymarket for review. If a video isn’t engaging enough, or if it bears obvious signs of being faked, Polymarket will ask for the videos to be reshot, the creators said.

All of this clearly violates the FTC’s rules on disclosing paid promotion, not to mention being clearly deceptive advertising. That isn’t even mentioning that Polymarket apparently demanded that the ads target Americans, even as Polymarket isn’t supposed to be operating its prediction market in the US (even though tons of people are using it there via VPNs and proxies).

This is where the CFTC should step in. Polymarket has been doing the whole “nudge, nudge, wink, wink” thing about supposedly not targeting the US. But this report makes it clear that they absolutely are targeting the US and that it’s an important market to them. In a normal administration, the CFTC would take note of this and take action:

As of early June, it only paid clippers if at least 60% of their audience was in the U.S., according to instructional materials.

There’s also this excuse given by one of the influencers, who may be about to learn about deceptive advertising laws:

Razeen Khan, a college student in California, worked as a Polymarket creator for several months until March. He compared the videos to fast-food commercials, where food can appear more appealing than it does in real life. 

“We’re depicting what actually happens,” he said. “You’re still going to buy the burger.”

This is quite the choice in what to compare things to, Razeen, because the FTC now has a few decades on the record of going after companies for representing food in ads in a deceptive manner. In 1968, there was the Campbell’s Soup case, in which the FTC dinged the soup company for placing clear marbles in the bottom of bowls so that photos of the soup made it look like there were more noodles and vegetables in the soup than there really were.

The general rule of thumb to avoid having the FTC come down on you is that if any food is shown in an ad, it has to be the actual food. Everything else around it can be faked or made to look better. But the food has to be real. Hell, there was just a case against Burger King (which appears to have settled earlier this year), alleging that the burgers it showed in commercials were bigger than what was actually sold.

So, yeah, Razeen, I’d suggest maybe talking to a lawyer before you claim that you’re just doing the same thing that you think fast food companies do… when those fast food companies know that they can face serious legal penalties for faking things. Like you appear to have done.

Of course, the real question is whether this FTC will do anything about it. On the merits, it’s about as clean a case as the agency is ever going to get — so blatant that looking the other way carries its own cost. But part of the reason Kalshi and Polymarket seem to be everywhere these days is that the Trump administration has gone to bat for both companies in their fights with state regulators — and that Donald Trump Jr. has financial links to both companies. So the agency that should be the natural enemy of a company building fake websites to run faked ads, instead answers to a White House championing that company, while the president’s son personally profits from its success.

Which is its own kind of tell. A prediction market’s entire pitch is that it surfaces the truth — that the wisdom of the crowd, with real money on the line, produces better information than anyone else can. Polymarket just demonstrated what it actually thinks of that promise: when it needed to sell itself, it didn’t trust the real numbers. It hired college kids, built a counterfeit version of its own site, and manufactured the wins. The product that’s supposed to reveal the truth couldn’t market itself without faking it.

This is the rare case clean enough to force the question. If the FTC does nothing with a fraud this obvious, it won’t be because the case is too weak. Instead, it will tell you exactly whose interests the Trump FTC thinks are worth protecting.

Filed Under: cftc, deceptive advertising, false advertising, fraud, ftc, influencers, prediction markets

Companies: polymarket