PredictIt Founder Gets More Time to Respond to CFTC Claims as Lawsuit Continues
Posted on: March 21, 2023, 05:58h.
Last updated on: March 21, 2023, 01:39h.
Victoria University of Wellington, the New Zealand institution that created PredictIt more than eight years ago, has received more time to respond to US regulators seeking to shut down the online political futures exchange.
Monday was supposed to be the deadline for the school to respond to a March 2 letter it received from the Commodity Futures Trading Commission (CFTC). In that letter, the federal agency said it rescinded an August 2022 notice in which the CFTC announced it was pulling the 2014 no-action letter that had enabled PredictIt to operate in limited fashion.
In the March 2 letter, which the CFTC included a redacted version of in a filing with the Fifth Circuit Court of Appeals the following day, commission staff outlined specific violations it alleges PredictIt committed that broke the terms of the no-action letter. Instead of issuing a deadline for stopping trading, like it did in the August letter, the commission initially set a Monday deadline in the letter for Victoria University to respond.
“Victoria University of Wellington has not yet responded to the letter from the CFTC,” the university told Casino.org in a statement Monday night ET (Tuesday afternoon in New Zealand). “The CFTC has extended the date by which the University is to respond to 5 April 2023.”
Earlier on Monday, a commission spokesperson told Casino.org the agency could not comment beyond what it has said in court filings and other public documents.
CFTC Court Filing Due This Week
The CFTC wants the Fifth Circuit to lift an injunction it placed on the agency earlier this year at the request of PredictIt and other plaintiffs in a federal lawsuit filed to keep the exchange alive. By revoking the original letter, the agency now says the injunction is moot, and the appeal should be dismissed.
The exchange was joined by Aristotle International, a Washington, DC-based political technology firm, as well as several traders and researchers who use the exchange in the lawsuit that was originally filed last September in a US District Court in Texas.
Initially, Monday’s deadline was one of two key dates this week in the ongoing case between the CFTC and PredictIt.
On or before Thursday, the CFTC must file its rebuttal to the plaintiff’s response to its call for terminating the injunction and the appeal.
Plaintiffs Claim CFTC Violated Injunction
Just as the CFTC called out the plaintiffs for not divulging that PredictIt and Aristotle knew about the CFTC’s claims before the August letter, the plaintiff’s response filed last week called out the agency.
For example, the plaintiffs argue that the CFTC had “at least seven” filings before its March 3 filing where it could have provided that information, but it never brought that up.
Rather than dismiss the case, the plaintiffs want the court to find the CFTC in contempt for what it said is a violation of the injunction.
“The CFTC is proposing that the parties start all over again, because it saw the writing on the wall and wanted to duck a feared ruling from this Court and to carry on its war against the PredictIt Market through other means,” the plaintiffs wrote. “The problem is that this Court had enjoined such behavior.”
The plaintiffs seek attorneys’ fees incurred for having to respond to the motion plus “any costs associated with nervous investor behavior” that’s due to the CFTC’s actions.
“Violating injunctions has consequences, and they typically exceed a government agency simply having to apologize,” the filing stated.
How CFTC Actions Have Affected PredictIt’s Markets
On Friday, I spoke with Pratik Chougule, an author, a foreign policy political consultant, and host of the Star Spangled Gamblers podcast. He’s also a trader on the PredictIt exchange.
Chougule told Casino.org that several traders opted to exit the market shortly after the August letter, and some more chose to leave after the midterms concluded. Because of that, it’s caused liquidity in the markets to drop.
But I think that traders overreacted,” he said. “I think that for the time being until, as we discussed, the legal case really has exhausted itself, I see no real reason to withdraw any money on here – unless you want to anyway. So, I have not withdrawn my money, and I urge anyone on PredictIt to stay with it.”
Chougule also called out PredictIt and its organizers for a reputation of poorly communicating with traders that has created “a credibility gap” for the market. And, while PredictIt has tried to rally traders to support its case against the CFTC, operators have yet to inform traders on how it would close down markets if that step becomes necessary.
PredictIt does not charge traders a fee to create an account, but it does take a 10% fee on profits when traders sell their shares for a higher price than they initially paid. The exchange also levies a 5% fee for withdrawals.
Chougule said he’d recommend to organizers that they should cut or do away with the withdrawal fee.
“If they were to do that, I think it would help them in their legal case, too,” he said. “It would make it easier for them to show that there have been real repercussions here if there were a flood of exits, but I think the market would also be more efficient. It would be easier to show the public interest value (of the exchange). And then, if the case were not to go their way, they would actually have an easier problem to resolve rather than the mess that they’re going get into if they don’t win. So, it’s not too late for that.”