Intrade, the online prediction market that gained popularity as an informal oddsmaker for the presidential election, shut itself to U.S. customers Monday after regulators charged it with illegally facilitating bets on future economic data, the price of gold and even acts of war.
Hours after the Commodity Futures Trading Commission (CFTC) filed a complaint in federal court, Intrade posted in its user forum and on its news page that it could no longer allow U.S. residents to trade “due to legal and regulatory pressures.”
U.S. residents must begin closing their accounts and withdrawing their funds immediately, the website said. It said customers must resolve open predictions by Dec. 23 or the site would assign them “fair market value” and close them.
The CFTC’s civil complaint charged that Intrade and its operator solicited customers to trade investment contracts that technically are options. Options must be traded on approved, regulated exchanges.
“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” laws and rules enforced by the agency, CFTC enforcement director David Meister said in a statement.
By requiring that options be traded on approved exchanges, Mr. Meister said, regulators can “police market activity and protect market integrity.”
Intrade did not respond to an emailed request for comment.
It was unclear whether regulators believe that all trades on Intrade by U.S. investors are illegal. The CFTC said it would not comment further because the matter is in litigation.
Intrade is known for facilitating bets on award shows, weather and other high-profile events. The prices at which customers are willing to make those bets are cited as informal odds. Intrade’s parent company, Trade Exchange Network Ltd. used to allow betting on sports through other sites that it operated.
For example, on Monday the site gave “Argo” a 28.5 percent chance of winning the Oscar for best picture and assigned a 19 percent chance that the United States or Israel would launch an airstrike against Iran by June 30.
The CFTC oversees markets for futures and options, investments that allow people to bet on the future prices of commodities like grain and oil. Those contracts help farms, airlines and other businesses to protect themselves against unexpected price swings.
Intrade and its parent company falsely claimed in annual reports that the contracts were not being sold to ordinary U.S. customers, the CFTC said. Regulators want the companies to pay fines and return profits that were obtained illegally. They want the site and its operators barred from any future activities related to options trading.
Trade Exchange Network settled similar charges of soliciting U.S. investors in 2005. 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. The company paid $150,000 and agreed to halt further violations.
Monday’s complaint includes charges that the Irish company violated that earlier settlement.
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