Predictions Market Intrade Closes All US Accounts In Response to CFTF Lawsuit

on Nov 28, 2012

On Monday the Commodity Futures Trading Commission (CFTF) filed a lawsuit against the owner of the predictions market website for allowing unauthorized trading by US clients.

** Shuts Down All US Accounts**
Just hours after the lawsuit was filed, the website sent an email notification to all of its US clients asking them to close their accounts or else they will be automatically shut down on 23 December. “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,” was the message posted on the Intrade chat room.

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In the legal filings the CFTF accuses Intrade of offering betting on future prices of crude oil, gold and changes in US economic data for the period of September 2007 to June 25, 2012. Bloomberg quoted David Meister, director of CFTF’s enforcement division, who said it is illegal in the US to solicit people to buy and sell commodity options unless these securities are listed on a CFTF-registered exchange or are legally exempt. “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 laws, Meister said.

**Is Intrade Dead?**
With the majority of its business coming from the US, the Dublin-based online marketplace has been effectively given a death sentence in its current form. The website however posted a message on its front page saying it will continue to offer real-money predictions markets to non-US customers and has planned a number of improvements including expanding the market categories, adding more convenient funding options and improving the trading interface.

The website also announced it is working on a long-term solution in the form of a new-exchange model that will allow legal participation from all jurisdictions, including the US.
!m[The CFTF Moves Beyond Forex Brokerages to Enforce US Trading Laws](/uploads/story/916/thumbs/pic1_inline.png)Intrade offers its clients real money wagers on a variety of market outcomes ranging from business to science and entertainment. One of its hottest markets right now include bets on whether Argo will win the Academy Award for Best Picture, whether the US will fall into recession next year or whether the Dow Jones index will close higher today. Of the more bizarre options available people can bet on whether NASA will announce discovery of extraterrestrial life in the next three years or whether there will be a successful WMD terrorist attack before New Year’s Eve.

**US Citizens and Foreign Brokerages**
A number of international brokerages, mostly in the forex business, have policies that restrict US citizens from trading on their platforms. The reason is the strict regulations in place, which limit or prohibit offering trading services to US citizens.
The primary law responsible for these regulations is the Dodd-Frank Act signed by President Obama on 21 July, 2010. The law was crafted in order to regulate financial markets of all kinds including stocks, futures, options and forex. The Dodd-Frank requires every Forex brokerage that desires to do business with US citizens to register with the CFTF and the National Futures Association (NFA). Most international forex brokerages in turn prefer to spare themselves the trouble and paperwork mess and simply exclude US citizens from their trading platforms.
The CFTF has filed lawsuits against some 25 brokerages on accounts of breaking the Dodd-Frank Act. FxOpen, one of the largest forex trading platforms in the world, was found guilty in January and was fined $140,000 (£87,500).


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