The U.S. Commodity Futures Trading Commission sued the operator of the Intrade website, alleging the company offered trading in options banned for U.S. customers in violation of securities laws and a previous agency order.
From September 2007 to June 25, 2012, Intrade continued to offer options betting on future prices of gold, crude oil and changes in U.S. economic data after it had pledged to stop doing so under the 2005 order, the CFTC said in a lawsuit filed today in federal court in Washington.
The CFTC said it’s seeking a permanent injunction to prevent Dublin-based Trade Exchange Network Ltd., which runs the Intrade site, from operating in violation of securities laws including a part of the Dodd-Frank Act intended to crack down on abuses in the sales ofderivatives. The CFTC also said it’s seeking fines and disgorgement of all monetary benefits received as a result of the violations.
It’s against the law to solicit people in the U.S. to buy and sell commodity options -- even if they’re called “prediction’ contracts -- unless the securities are listed for trading and traded on a CFTC-registered exchange or are legally exempt, David Meister, director of the CFTC’s enforcement division, said.
The requirement for on-exchange trading “enables the CFTC to police market activity and protect market integrity,” Meister said in a statement on the agency’s website.
Intrade failed to comply with the 2005 order, “including its obligation to inform U.S. customers which contracts offered on the www.intrade.com website they were prohibited from trading,” according to the suit.
Intrade said all of its U.S. customers would be required to shut down their accounts by Dec. 23 in a statement on its website.
“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,” Intrade said. “We understand this announcement may come as a surprise and a disappointment, and we apologize for the short notice and haste required to deal with this.”
In 2005, Trade Exchange Network agreed to pay $150,000 to settle allegations it illegally offered contracts in the U.S. based on the price of gold, crude oil, the euro and the yen, among other commodities.
The exchange, which extended a “high level of cooperation” in the investigation, didn’t admit or deny the findings, the CFTC said at the time.
The CFTC investigation preceding the 2005 order found that the exchange actively marketed its products to U.S. residents, eventually building a U.S. clientele that made up as much as 40 percent of its total customers. Trade Exchange Network currently has about 50,000 members, according to its website.
The CFTC’s 2005 order specifically listed as examples of banned options such contracts as the daily crude oil contract, gold futures, light sweet crude oil futures and the intraday euro versus U.S. dollar rate contract, according to the complaint.
Trade Exchange Network “has failed to cure or attempt to cure, its violations of the 2005 order,” the CFTC said in the lawsuit.
The case is U.S. Commodity Futures Trading Commission v. Trade Exchange Ltd., 1:12-cv-01902, U.S. District Court, District of Columbia (Washington).