The US Commodity Futures Trading Commission has filed a civil complaint charging Intrade The Prediction Market and Trade Exchange Network (TEN), based in Dublin, Ireland, with offering commodity option contracts to US customers for trading, as well as soliciting, accepting and confirming the execution of orders from US customers, all in violation of the CFTC’s ban on off-exchange options trading.
The CFTC’s complaint also charges Intrade and TEN with making false statements concerning their options trading website in documents filed with the CFTC, and charges TEN with violating a 2005 CFTC cease and desist order.
Intrade and TEN jointly operate an online “prediction market” trading website, through which customers buy or sell binary options which allow them to predict (“yes” or “no”) whether a specific future event will occur, according to the CFTC’s complaint.
Specifically, according to the complaint, from September 2007 to 25 June 2012, Intrade and TEN operated an online “prediction market” trading website, which allowed US 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 US customers to buy and sell options predicting whether specific future events would occur, including whether certain US 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 US 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, says: “It is against the law to solicit US 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. 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 US activities violate the Commodity Exchange Act or the CFTC’s regulations.”
In its continuing litigation the CFTC seeks civil monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations of federal commodities law, as charged, among other relief.