Online ‘Predictions’ Market Intrade Shuts Down Months After Federal Lawsuit

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Gary Cameron / REUTERS

Gary Gensler, Chairman of the Commodity Futures Trading Commission, testifies before the Senate Banking, Housing and Urban Affairs Committee in Washington February 14, 2013.

Intrade, the popular Ireland-based betting website that allowed people to wager on everything from political elections to the Oscars, announced Sunday that it is shutting down. Intrade has long been under pressure from U.S. regulators, and last November, the Commodity Futures Trading Commission sued the website for operating an improper, off-site options exchange. Intrade promptly banned U.S.-based traders — which made up the bulk of its users — from placing bets on the site. It’s unclear what the proximate cause was for Sunday’s abrupt shutdown, but the site’s operators said they are doing “all we can to resume operations as promptly as possible.”

Intrade allowed users to take positions (or contracts) predicting the outcome of future events, much as options traders bet that the price of a commodity like orange juice or pork bellies will rise or fall. The website then aggregated the various contracts to generate the probability that a future event — like the winner of a political election — will occur. By aggregating the collective intelligence of its traders, Intrade was able to generate remarkably accurate predictions, which made it very popular with journalists and pundits.

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The website shot to fame in 2008, when its users correctly predicted that Barack Obama would win the presidential election. Last year, Intrade users correctly predicted the electoral outcome of 49 out of 50 U.S. states (Florida was the exception). In recent days, Intrade’s users have been betting on the most likely candidate to succeed Pope Benedict XVI. (Archbishop Angelo Scola of Italy is the favorite.)

“Speculative markets do a remarkably good job of aggregating information,” Robin Hanson, an economist at George Mason University and consultant to a predictions trading software company, told Bloomberg recently.

In a statement posted on its website, Intrade said that “due to circumstances recently discovered” the site is immediately ceasing trading activity. “These circumstances require immediate further investigation, and may include financial irregularities,” Intrade said. As a result, the website said it is settling all open positions effective immediately. “At this time and until further notice, it is not possible to make any payments to members in accordance with their settled account balance until the investigations have concluded,” Intrade said.

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Last November, the CFTC sued Intrade for operating an unlawful options exchange, which among other things, allowed users to bet on U.S. economic numbers, gold and currency prices, and even whether specific acts of war would occur. The CFTC also charged Intrade with making false statements about its website in documents filed with the CFTC, and alleged that the website had violated a 2005 CFTC cease and desist order. Intrade did not offer users the opportunity to bet on sports or stocks.

“It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction’ contracts, unless they are listed for trading and traded on a CFTC-registered exchange or unless legally exempt,” David Meister, the Director of the CFTC’s Division of Enforcement, said in a statement at the time. “The requirement for on-exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity. Today’s action should make it clear that we will intervene in the ‘prediction’ markets, wherever they may be based, when their U.S. activities violate the Commodity Exchange Act or the CFTC’s regulations.”

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The CFTC said that as part of the litigation, it is seeking “civil monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations of federal commodities law.” Following the CFTC lawsuit, Intrade said in a statement that “due to legal and regulatory pressures, Intrade can no longer allow US residents to participate in our real-money prediction markets.” A CFTC spokesperson did not immediately return a call for comment late Sunday evening.

Intrade was founded in 1999 by Irish entrepreneur John Delaney. The site raised millions of dollars from investors in Europe and the United States, according to documents filed with Ireland’s Companies Registration Office, which were cited in a 2011 New York Times article. Intrade’s users correctly predicted the capture of Saddam Hussein in 2003, as well as Donald H. Rumsfeld’s resignation as defense secretary in 2006, according to The Times.

Delaney died in 2011 at age 42, just 50 feet from the summit of Mount Everest, during an attempt to scale the world’s tallest mountain. “A keen mountaineer who had scaled several of the world’s highest peaks, John was on his second expedition to Everest, having been beaten back by bad weather on his first attempt five years ago,” Intrade said in a statement at the time, which was cited by The Times.

3 comments
larsonm
larsonm

So, for the U.S. Government, a couple of million dollars bet with InTrade constitutes illegal commodities trading but a couple of trillion dollars bet on CDSs don't.  Makes the Gov't look stupid -- or maybe not just look.

wearenotamused
wearenotamused

It would've been nice to hear the CFTC's reason for considering Intrade to be an options exchange in the first place.

AndrewnotJacksn
AndrewnotJacksn

So only the big boys can bet on commodities?  Ridiculous abuse of power by the u.s. financial barons.