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.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.
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.
GS always thinking ahead.
(ht Bill Bergman)