Tuesday, November 27, 2012

Americans Forced to Close Their Intrade Accounts

The Empire stretches to reach and mess around wherever it can--no doubt irritating more people in the process.

On Monday, Americans were told that they must close their Intrade.com accounts, reports John Stossel. That happened because the Commodity Futures Trading Commission yesterday sued Intrade, where people from all over the world bet about things like who will win elections.

Stossel goes on:
Intrade decided all its U.S. customers must now close their accounts and withdraw their money from the site.

Why did the American government sue Intrade? It was not for operating an online gambling operation, but for allegedly violating America's incomprehensible financial regulations -- specifically, these ones:

"Section 4c(b) and 9(a)(3) of the [Commodity Exchange] Act, §§6c(b) and 13(a)(3) (2006); Section 2(e) of the Act, as amended by the Dodd-Frank Act, to be codified at 7 U.S.C. § 2(e); and Regulation 32, as amended, to be codified at 17 C.F.R. § 32 (2011);"

In English: the government says that many of the things Intrade allows people to predict - everything from what the price of gold will be in the future to whether the U.S. will go to war soon - are legally considered "commodity options," and that Intrade broke the law because it isn't licensed to trade those. The penalty is $140,000 per violation.
In a press release, the CFTC's chief enforcer went out of his way to target "prediction markets":

"It is against the law to solicit U.S. persons to buy and sell commodity options, even if they are called ‘prediction' contracts, unless they are... traded on a CFTC-registered exchange... Today's action should make it clear that we will intervene in the ‘prediction' markets, wherever they may be based."

Why doesn't Intrade just obey the complicated law and become a licensed exchange? They tried, but the CFTC won't give them a license.
It should be noted that the commissioner of the CFTC is Gary Gensler, a former partner at, you guessed it, Goldman Sachs. InTrade was getting very popular among individual traders, something that might eventually result in InTrade getting big enough to move in on some of the lucrative commodity trading conducted by GS. Well, Gensler sure took care of that developing problem.

GS always thinking ahead.



(ht Bill Bergman)

19 comments:

  1. Disgusting. I'm outraged.

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  2. In my opinion, a big reason for the intrade lawsuit is the government's dislike of prediction markets. The fact is that they do a tremendous job of informing participants and observers of where something will be on a future date. Government doesn't like that sort of thing available to just anyone.

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  3. Land of the free...

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    1. Land of the Blind, you mean.

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  4. But without the CRTC, then poor naive investors will be taken advantage of by non-licensed vultures. We MUST capitulate and allow monopolization by "credible" people.

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  5. Let them close it, eventually there will only be two options, their obvious rigged markets and physical gold and silver. I think we all should know who wins that fight.

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  6. ... home of the brave

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  7. Intrade is not a US company. I think it is headquartered in Ireland, and has no US employees or properties. The US says it is breaking US law, but US lawmakers can only make laws that apply in the US, right?

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    1. I don't think you've grasped what's happened. The law does not pertain to Intrade but to Americans trading futures contracts (whether at Intrade or anywhere else).

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    2. not quite: "we will intervene in the ‘prediction' markets, wherever they may be based."

      That sounds to me like they unilaterally want to intervene in foreign markets, as they are doing all the time anyway.

      We foreign aliens just love that behaviour !

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  8. This ranks up there with some of the worst tyrannical power grabs of the Federal government. There are thousands of things about this story that upset me, but there are two points that especially make my blood boil.

    First, there is no mention of any supposed victim or consumer who was injured because of Intrade. None. Let me repeat that, no one was injured at all.

    The second reason comes from the complaint filed by the CFTC, which can be found here:

    http://www.cftc.gov/ucm/groups/public/@lrenforcementactions/documents/legalpleading/enftradeexchangecomplaint11261.pdf

    Take a minute and read closely paragraphs 34 through 38 of the complaint. Notice the government claims that Intrade illegally operated as an exempt board of trade (EBOT), i.e. the government is saying that Intrade did not qualify for the EBOT exemption. Why is that? Because that exemption is only available for customers whose net worth exceeds $10,000,000. In other words, Intrade's mortal sin was that it allowed the poor peasants who don't have $10,000,000 access to prediction markets. According to the CFTC, Intrade is breaking the law if it allows anyone other than the wealthiest 0.5% access to prediction markets.

    Apparently, high net worth investors are the only ones "sophisticated" enough to bet on who will win the next presidential election.

    I feel like Bruce Banner right now.

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    1. http://marvel.com/universe/Hulk_(Bruce_Banner)

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    2. I meant the Marvel Comics link respectfully and in sympathy and respect, Mr. King. I feel like Bruce Banner too, and others like Iron Man. Maybe we can do some good with ideas, through vehicles like EPJ, and other places.

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  9. Cant wait to see how they deal with crowd funding.

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  10. I have used Intrade, mostly during the 2008 Presidential elections. Web site was easy to use, bank transfers in and out of my a/c were fast. The problem for CFTC is that Intrade is independent and fair. Unlike on Comex, big and small players get treated the same. Obviously this couldn't be allowed to continue, it sets a terrible example, so the CFTC did its Wall St masters' bidding and put a stop to it.

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  11. Anonymous: Nope. Because the US provides protection for half the world, they've also done deals that allows them to apply laws outside of the US. See Mega-upload if you have any questions on how this works. But more specifically, when the US started extending protection to American companies and individuals overseas they also extended US law to apply to Americans acting out-of-country. That means that if you are an American and break a US law even while acting outside of US borders, you're still guilty of US crimes and can be convicted. What laws and what the penalties are are very uneven depending upon what jurisdiction etc. but anything that includes a wire (i.e. internet or phone line) is 100% covered by current US law. Intrade was considered gambling and thus all that is happening is that they're finally going to charge US citizens under online gambling laws. It was just a matter of time before it got big enough for someone to complain to have the law applied to Intrade.

    It's ironic that Intrade simply took the CIA's own system and made it profitable though... (this is likely the reason it took so long for them to finally shut it down. Intrade was incredibly useful to the US government for predicting world events.)

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  12. "Because the US provides protection for half the world" "Done deals". To put it kindly I believe your premises are flawed.

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