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
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.
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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