Market Sabotage is Rare
Stock markets trade a lot of money estimating the expected future profits of each firm. And in principle, stock traders should be able to profit by selling (or shorting, or buying puts on) a firm’s stock, and then sabotaging that firm. Such as by burning down a factory, putting poison in its ingestible product, or killing a top manager.
But such sabotage almost never happens. For example, in 2002 a sys-admin put a logic bomb in PaineWebber computers after buying puts. But he lost money, and then was caught. In 2010 a mid-cap European firm’s CEO was poisoned by someone who had shorted the firm’s stock, but he was caught and the CEO survived. The 911 commission looked for trades profiting from from prior knowledge of that, but found none.
Yes, there are many examples of selling and then releasing bad (and maybe false) info about firms, or starting lawsuits based on such info. But the closest I can find to successful firm sabotage is launching (or threatening) ransomware or data-theft attacks on firms after selling their stock. There are also examples of individuals burning buildings and hurting people after buying insurance on such things.
I conclude that in practice successful sabotage is quite rare, and seems to be limited to cases where an individual can trade with their own assets, and cause the harm directly and personally, while feeling pretty safe from detection.
Typical prediction markets have far less money at stake than typical stock markets, so we should expect far less sabotage there when individuals have comparable abilities to influence events at issue. We should only see a substantial risk of sabotage there for events that are far easier to causally influence that firm stock value.
To the extent that you are worried about sabotage, the first thing to do is to make sure that trading records can be subpoenaed when there is suspicion of a crime.
"But such sabotage almost never happens."
Like the shorting of United and American Airlines stock just before 9-11.
Not all actions harmful to a company are legally prohibited, just as not all actions that benefit a company are legally required. If that were true, it would mean the government would be dictating every aspect of company policy, which defeats the point of having a market in the first place.
We cannot catch all instances of market sabotage by looking for blatant violations of law. The absence of such violations does not mean sabotage is not going on.
What are some examples of legal ways to harm a business? Suppose business A opens a location competing with business B. Decision-makers in business A have an incentive to short stock in business B before doing this.
Suppose business A is about to open a facility that has negative externalities that discourage certain other local businesses, such as a factory producing a lot of pollution, an airport producing a lot of noise reducing nearby property values, or a liquor store or casino which may increase crime and decrease the appeal of the area. Decision-makers in business A then have an incentive to short stock in the affected local businesses.
Suppose a legislator is considering a bill that would harm business A. The legislator has an incentive to short stock in business A before passing the bill. If the legislator is listening to a lobbyist from an opposing business, the lobbyist and his backers also have an incentive to short stock in A, once they are confident the bill will be passed.