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All Bets Are Off: Intrade Shuts Door To U.S. Customers

Mon, November 26, 2012 11:15pm

Story by Krishnadev Calamur


Intrade, the prediction website that accepted bids on, among other things, the result of the presidential election, is shutting its operations to U.S. customers. The move came Monday just hours after the Commodity Futures Trading Commission accused the Ireland-based company of violating the agency's ban on off-exchange options trading.

Here's more from Intrade's news release announcing the move:

"We are sorry to announce that due to legal and regulatory pressures, Intrade can no longer allow US residents to participate in our real-money prediction markets.

"Unfortunately this means that all US residents must begin the process of closing down their Intrade accounts. We strongly urge you to begin this process immediately."

In its statement, Intrade called the move "a surprise and a disappointment."

The company's decision followed the CFTC's decision to file a complaint in federal court in Washington, D.C., alleging that Intrade and Trade Exchange Network Ltd., or TEN, made false statements about the website in documents filed with the agency.

Here's more from the CFTC statement:

"Specifically, according to the complaint, from September 2007 to June 25, 2012, Intrade and TEN operated an online 'prediction market' trading website, which allowed U.S. customers to trade options products prohibited by the CFTC's ban on off-exchange options trading. Through the website, Intrade and TEN allegedly unlawfully solicited and permitted U.S. customers to buy and sell options predicting whether specific future events would occur, including whether certain U.S. economic numbers or the prices of gold and currencies would reach a certain level by a certain future date, and whether specific acts of war would occur by a certain future date.

"The CFTC's complaint also charges Intrade and TEN with knowingly filing false 'Annual Certification' forms with the CFTC stating that Intrade limited its options offerings to eligible market participants. Contrary to these representations, the complaint alleges that Intrade unlawfully solicited and permitted retail U.S. customers to buy and sell off-exchange options on the website.

"In addition, the complaint alleges that TEN violated an order issued by the CFTC in 2005 that found that TEN had previously engaged in similar conduct and ordered TEN to cease and desist from violating the Commodity Exchange Act and CFTC regulations, as charged."

David Meister, the director of the CFTC's Division of Enforcement, said it's illegal for Americans to buy and sell commodity options unless they are listed for trading and traded on a CFTC-registered exchange.

"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," he said in the statement. "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."

The Associated Press reports that TEN settled similar charges of soliciting American investors in 2005. Here's more from the AP story:

"In an order filed with that settlement, the CFTC said that U.S. customers accounted for up to 40 percent of Intrade's total customer base. TEN paid $150,000 and agreed to halt further violations.

"Under the settlement, TEN agreed to use pop-up windows to tell U.S. customers which bets were not available to them. It said it would cooperate in any future investigations."

Intrade accepts bets on a wide variety of topics. Most recently, it was in the news because President Obama's prospects at re-election remained well above the 50 percent rate in the run-up to the election. The website is currently accepting bids (from non-U.S. customers) on which movie will win the Academy Award for Best Picture (Argo is at 28 percent); whether the U.S. economy will go into recession in 2013 (25 percent chance); and whether the Dow Jones industrial average will close on or above 13,000 on Dec. 31 (50 percent chance).

(h/t NPR's Steve Mullis)

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