Intrade, Facing Charges, Won't Take U.S. Bets

By JAMILA TRINDLE

WASHINGTON—For Americans, all bets are off.

The online-predictions exchange Intrade—known for offbeat markets on presidential politics and the Academy Awards—said it would no longer accept bets from U.S. residents. The move came just hours after U.S. regulators filed a civil complaint against the firm over its commodities-focused markets.

"We are sorry to announce that due to legal and regulatory pressures, Intrade can no longer allow U.S. residents to participate in our real-money prediction markets," the Dublin-based company said in a statement on its website. Intrade said that existing customers must exit their trades and close their accounts.

The exchange, founded in 1999, is best known for its market on U.S. presidential elections. The market's prices were used as another measure—alongside traditional polls—of which candidate was mostly likely to win. But Intrade also allows customers to bet on anything—from whether a dictator will be toppled by a certain date to whether countries will drop the euro—as well as commodities such as oil and gold.

These commodity- and markets-related trades drew the scrutiny of U.S. regulators. Monday, the Commodity Futures Trading Commission accused Intrade and its parent company of violating its ban on off-exchange options trading. The CFTC also charged the Irish company with violating a cease-and-desist order stemming from similar charges in 2005 and making false statements to regulators.

The CFTC complaint specifically targets Intrade's options on gold, crude oil and currencies, and it doesn't mention the website's political and entertainment contracts. It isn't clear how much of the company's business involves the options the CFTC targeted. The CFTC isn't charging any Intrade customers.

Trade Exchange Network, Intrade's parent, paid a $150,000 fine in 2005 and agreed to stop soliciting U.S. customers for commodities bets. The CFTC said at the time that 33% to 40% of the site's customers were based in the U.S. The CFTC didn't provide an updated estimate of U.S. customers Monday.

In the complaint filed Monday in federal district court in Washington, the CFTC alleged that the company was running an off-exchange options market that illegally solicited U.S. customers. The CFTC is seeking civil monetary penalties as well as disgorgement of ill-gotten gains from Intrade and TEN.

"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 listed for trading and traded on a CFTC-registered exchange or unless legally exempt," Enforcement Director David Meister said in a statement.

Intrade didn't respond to requests for comment beyond the statement posted on its website.

Intrade's presidential contracts are the most closely followed and correctly predicted the winner in 2012, but they are a relatively small market, according to research by David Rothschild and David Pennock of Microsoft Research. Intrade's presidential election contracts had 4.3 million bets on $10 contracts for the two candidates in mid-October, they found.

Justin Wolfers, a professor of economics and public policy at the University of Michigan, said Intrade's move makes room for another prediction or sports betting site. "There's a very large and active market on U.S. political outcomes, and that's not going away," he said. Businesses and election watchers still have other places like U.K prediction site Betfair BET.LN -0.07% to look to, he noted.

"What will happen in 2016 is that journalists and political pundits will watch other prediction markets, just not Intrade," Mr. Wolfers said.

The CFTC has rejected exchange applications in the past from companies that wanted to sell options on political outcomes. In April, the CFTC prohibited the North American Derivatives Exchange, or Nadex, from selling options on the presidential election because they "involve gaming and are contrary to the public interest."

Write to Jamila Trindle at jamila.trindle@dowjones.com

A version of this article appeared November 27, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Intrade, Facing Charges, Won't Take U.S. Bets.