Feds charge Intrade with allowing illegal bets

WASHINGTON U.S. regulators on Monday sued Intrade, the online prediction market that gained popularity as an informal oddsmaker for the presidential election, saying it illegally let customers bet on future economic data, the price of gold and even acts of war.

The Commodity Futures Trading Commission said in a complaint in federal court 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, Meister said, regulators can "police market activity and protect market integrity."

Intrade did not respond to an emailed request for comment.

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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 was in litigation.

Intrade is known for allowing bets on sports and other high-profile events. The prices at which customers are willing to make those bets are cited as informal odds.

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.

In the complaint, the CFTC alleged that Intrade, based in Ireland, had illegally solicited everyday U.S. investors to use the website between September 2007 and June 25 of this year.

Intrade and its operator, Trade Exchange Network Ltd. (TEN), 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.

Intrade users reported on Twitter that the site already blocks them from trading contracts related to the prices of oil and gold.

One of them, Joe Schilling, posted an image of an email he said was sent by Intrade in 2009, stating that crude oil and gold contracts were unavailable to U.S. users "due to a regulatory request" from the CFTC.

TEN 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. 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.

Monday's complaint includes charges that TEN violated that earlier settlement. The company nevertheless used Intrade to offer illegal options including on the future prices of gold and oil, changes in the unemployment rate and measures of U.S. economic output.