Irish
Intrade faces closure; Best known Irish high tech firm in US
By Finfacts Team
Apr 7, 2013 - 8:47 AM

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Intrade, the online betting and prediction service, which is the best-known Irish high tech firm in the US, faces closure a month after its operations were suspended because of financial irregularities.

Ronald Bernstein, a director of Intrade, said in a statement on Friday: "the company is in a cash 'shortfall' position of approximately US$700,000 when comparing all cash on hand in company and member bank accounts with member account balances on the Exchange system.

If the company is not able to rectify this cash shortfall position very quickly, the company will become insolvent and therefore is very likely to go into liquidation...I can confirm that the company, if it is able, intends to vigorously pursue two substantial monetary claims against two distinct parties for an aggregate amount greater than $3,500,000."

John Delaney, an Irish businessman, founded Intrade in 1999, and the service became popular in the United States as a prediction market for events such as the outcome of presidential elections, probability of recessions and who would be selected as pope. It also got unwelcome attention from US regulators.

Delaney died in May 2011 after coming within 50 yards of the summit of Mount Everest. He was 42 and had been an accountant early in his career and earned an MBA in finance from University College Dublin. His body was left on the mountain.

Last November, following the presidential election that attracted significant business to the service, the US Commodity Futures Trading Commission (CFTC) filed a civil complaint in federal district court in Washington, DC, charging Intrade The Prediction Market Limited (Intrade) and its parent, Trade Exchange Network Limited (TEN), Irish companies based in Dublin, Ireland, with offering commodity option contracts to US customers for trading, as well as soliciting, accepting, and confirming the execution of orders from US customers, all in violation of the CFTC’s ban on off-exchange options trading. The CFTC’s complaint also charged Intrade and TEN with making false statements concerning their options trading website in documents filed with the CFTC, and charges TEN with violating a 2005 CFTC cease and desist order. Intrade ceased servicing US customers.

In 2005, TEN paid a $150,000 fine and agreed to stop soliciting US customers for commodities bets. The CFTC said at the time that 33% to 40% of the site's customers were based in the US. The CFTC didn't update that estimate of US customers last November. The firm had urged CFTC oversight, saying that a more liquid and transparent market with a clear regulatory framework would deter efforts at the very manipulation the agency seems concerned with.

It was reported last month that the company’s auditors had raised concerns over more than $1.5m payments in 2010/2011 to John Delaney and other unnamed third parties, that were not sufficiently documented.

Intrade said on Friday that it had contacted all members with account balances greater than $1,000, and proposed a “forbearance” arrangement between these members and the company, which if sufficient members agree, would allow the company to remain solvent.

Statement

Intrade held members' funds of $5.7m at December 31, 2011, and had net assets of $1.9m, according to accounts filed at the Irish companies office.

Neil Irwin of The Washington Post wrote in March on Intrade's suspension:

"It’s a shame, and this is why. We live in a world of punditry in which there are large amounts of, to put it nicely, horse manure. Those of us who write and talk about what will happen inevitably rely on vague predictions, full of qualifications. I’m guilty of it myself, and often find myself writing things like “this ought to be an OK year for the economy, if fiscal austerity isn’t too severe and there isn’t a return of the European crisis.”

On Intrade, by contrast, the traders who participate and collectively set market prices, are forced to choose—and put money where their mouths are. Will the United States enter a recession in 2013? Before it shut down, the prices for that contract on Intrade implied a 16.9% chance that the answer was 'yes.' In a world in which people hold their pundits to a higher standard, people spouting off on the economy (or politics, or foreign affairs, or the selection of the pope) would be forced to make specific, testable predictions, and attach probabilities to those guesses."

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