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This morning I received the following email from SSRN about my timely and important article following up on Orin Kerr’s “Theory of Law”

Based on criteria set by SSRN, your submission currently does not qualify for public availability as we are unable to determine the merits of scholarly research. If you would like the abstract available for public viewing, please upload a PDF file of the full-text document so that we can make a better determination.

Thank you,
SSRN Management

What does “privately available” mean?

his section contains papers that are not displayed on your Author Page unless the “Include on Author Page” checkbox is checked. They are not available in the public SSRN eLibrary or to the SSRN search engine due to an author request, submission restriction (e.g. restricted conference), or SSRN policy (e.g. paper is an opinion/advocacy paper or is not a scholarly research paper covered by one of SSRN´s networks). If you want a private paper to display in the “Other Papers” section on your SSRN Author Page and as a result be searchable by external search engines (such as Google), click the paper´s “Include on Author Page” checkbox below (if available). Downloads of these papers are not included in computing the total downloads shown on your author page.

In other words, the 500 downloads of this article–the lifeblood of my academic existence!–have now been swept away into the ether.

I will not take this short-sightedness and cabined view of profound scholarship sitting down (never mind, it is tough to type while standing up)!

I have now posted a revised version of “My Own Theory of the Law” that meets SSRN’s strict criteria. I assure you that this argument is supported by the strongest foundation of legal precedents (see Footnote 1). You can download it here.

Trinity Church in downtown Manhattan has a famous cemetery, in which many participants in the American revolution and the early years of our Republic were buried–most famously Alexander Hamilton.

The most famous permanent resident at the cemetery of Trinity Church is none other than Alexander Hamilton who was buried here after his untimely death at the age of 47.

The inscription reads:

Alexander Hamilton: The Corporation of Trinity Church has erected this monument in testimony of their respect for The Patriot of incorruptible Integrity, The Solider of approved Valour, The Statesman of consummate Wisdom, Whose Talents and Virtues will eb Admired in Graceful Posterity, Long after the Marble, shall have moistened into Dust. He died July 12, 1804, Aged 47.

The New York Society of the Cincinnati who erected a plaque in memory of Hamilton, and other members of the Society interred at Trinity parish, including General Horatio Gates, the leader of the Battles of Saratoga.

Also buried was Hamilton’s wife Eliza Hamilton. Alexander cheated on Eliza–his integrity was quite corruptible.

In addition to Hamilton, Robert Fulton, inventor of the steam boat was buried in Trinity Cemetery. Perhaps what was coolest is that a model of the steam boat design was etched into the tomb.

Speaking of Fulton, there was also a marker for a David Ogden, who I would be willing to bet was related to Aaron Ogden, the plaintiff in Gibbons v. Ogden. Of course, Aaron Ogden tried to defy Robert Fulton and Robert Livingston’s monopoly on steamboat service between New York and New Jersey.  So Fulton was buried in the same lot as the ancestor of the guy who sued him in Gibbons v. Ogden and broke up his unconstitutional monopoly! Aaron would go on to serve as the Governor of New Jersey.

And speaking of Robert Livingston, he served on the New York Court of Appeals for 25 years, and negotiated the Louisiana Purchase as Jefferson’s Minister to France. Livingston was also the author of the dissent in Pierson v. Post! [Update: My memory failed me. It was Brokholst Livingston, who authored the Pierson dissent. I gather they are related].

And who wrote the majority in Pierson? Daniel Tompkins of course, who went on to serve as Governor of New York and Vice President for James Monroe. And where did Tompkins die? In a neighborhood of Staten Island, now known as Tompkinsville.

How much fun would it be to play 6 degrees of Alexander Hamilton for the revolutionary era. Kevin Bacon’s got nothing on Alex Hammy (that pun is probably making all the residents of Trinity Church roll over in their graves).

Note: This is not the Church of the Holy Trinity from the famous Supreme Court case, Church of the Holy Trinity v. United States. The physical church at issue in that case is no longer in existence–though that congregation at  316 E. 88th Street traces its lineage back to the 18th Century,

Oh, and while I’m at it, Justice Josiah Brewer, who authored Church of the Holy Trinity, was the son of a Reverend, and the nephew of Justice Stephen Field.

Brian Caplan raises a good point about the CFTC’s prosecution of Intrade: there should be a 1st Amendment challenge for prediction markets.

[tweet https://twitter.com/bryan_caplan/status/273264205501718529]

My friend Miriam Cherry, along with Robert Rogers, wrote a 2008 article in the Illinois Law Review addressing just that question, titled “Prediction Markets and the First Amendment.”

The article notes:

Because of the expressive element inherent in prediction markets, we contend that one’s participation in such a market is often entitled to First Amendment protection. Each person who participates in an infor- mation market is, in essence, offering his or her opinion on the outcome of an uncertain future event. A survey of the markets currently operat- ing shows that they have tended to cluster in certain areas, predicting po- litical events, current events, as well as developments in entertainment, science, and technology.12 Currently, more than a third of the publicly traded information markets work to predict the outcomes of elections and newsworthy issues.13 These subjects are all areas of public concern, as that term is traditionally used in First Amendment jurisprudence, and indeed, many of these subjects involve areas of core political speech. In addition to the speech rights of the individual participants, information markets as a whole generate predictions that are a form of “metaspeech” that should also be allowed to flourish.

Although several other commentators have offered preliminary identification of the existing regulatory regimes—commodities trading, securities regulation, and gambling laws—that might be applied to in- formation markets,14 there has been little discussion of the interaction of prediction markets with the First Amendment.15 Certain characteristics of prediction markets, such as their reliance on information, skill, and knowledge, make them different from gambling or other games of chance, or even from games of mixed skill and chance, such as poker. Prediction markets are also different from traditional stock markets, which exist for the purpose of raising capital and sharing risk and reward among investors. And certain characteristics of information markets set them apart from commodities markets, which are designed to allow enti- ties to engage in hedging strategies to manage their risk exposure.1

From oral argument in  11-1160. FTC v. Phoebe Putney Health System, Inc.:

MR. WAXMAN: And if I could just -­

JUSTICE SCALIA: Mr. Waxman, if you don’t want to be interrupted, you have to pause between sentences.

MR. WAXMAN: I was taking a cue from Your Honor’s last argument.

JUSTICE SCALIA: I understand. That’s right.

Not pausing between sentences is a great skill of advocacy–though I’m sure it irks a Justice who wants to ask a question.

Buzzfeed reports that Intrade has been sued by the Commodities Future Trading Commission for “allegedly allowing illegal trading in gold and other commodities it regulates.” Intrade, based in Ireland, has cut off access to all American customers.

From Intrade’s release:

We are sorry to announce that due to legal and regulatory pressures, Intrade can no longer allow US residents to participate in our real-money prediction markets.

Unfortunately this means that all US residents must begin the process of closing down their Intrade accounts. We strongly urge you to begin this process immediately: . . .

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. We would like to sincerely thank all US customers for their custom, support and loyalty over the years.

For some time, I have wondered about InTrade’s legality. Based in Ireland, they operated in something of a jurisdictional flux.

The North American Derivatives Exchange approached the CFTC about creating a prediction market, but the CFTC prohibited it earlier this year. It looks like they are cracking down on all prediction markets.

Looks like there is now only one market for Supreme Court predictions–FantasySCOTUS.net. Though, no money is transferred anywhere on FantasySCOTUS. It is just for fun.

Asides from the CFTC, I am fairly sure that prediction markets for political events do not violate gambling and wiretap laws.

And, for what it’s worth, our predictions were far more accurate than Intrade’s.

Update: Alex Tabarrok links to the CFTC’s press release. This seems really serious.

The U.S. Commodity Futures Trading Commission (CFTC) today filed a civil complaint in federal district court in Washington, DC, charging Intrade The Prediction Market Limited (Intrade) and Trade Exchange Network Limited(TEN), Irish companies based in Dublin, Ireland, with offering commodity option contracts to U.S. customers for trading, as well as soliciting, accepting, and confirming the execution of orders from U.S. customers, all in violation of the CFTC’s ban on off-exchange options trading.

Intrade and TEN jointly operate an online “prediction market” trading website, through which customers buy or sell binary options which allow them to predict (“yes” or “no”) whether a specific future event will occur, according to the CFTC’s complaint.

Specifically, according to the complaint, from September 2007 to June 25, 2012, Intrade and TEN operated an online “prediction market” trading website, which allowed U.S. customers to trade options products prohibited by the CFTC’s ban on off-exchange options trading. Through the website, Intrade and TEN allegedly unlawfully solicited and permitted U.S. customers to buy and sell options predicting whether specific future events would occur, including whether certain U.S. economic numbers or the prices of gold and currencies would reach a certain level by a certain future date, and whether specific acts of war would occur by a certain future date. [JB: and the outcome of Supreme Court cases]

…David Meister, the Director of the CFTC’s Division of Enforcement, stated: “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. The requirement for on-exchange trading is important for a number of reasons, including that it enables the CFTC to police market activity and protect market integrity. Today’s action should make it clear that we will intervene in the ‘prediction’ markets, wherever they may be based, when their U.S. activities violate the Commodity Exchange Act or the CFTC’s regulations.”

In its continuing litigation the CFTC seeks civil monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations of federal commodities law, as charged, among other relief.

The CFTC acknowledges the Central Bank of Ireland for its assistance in the CFTC’s investigation of Intrade and TEN.

Update: John Stossel weighs in:

Why did the American government sue Intrade? It was not for operating an online gambling operation, but for allegedly violating America’s incomprehensible financial regulations — specifically, these ones:

“Section 4c(b) and 9(a)(3) of the [Commodity Exchange] Act, §§6c(b) and 13(a)(3) (2006); Section 2(e) of the Act, as amended by the Dodd-Frank Act, to be codified at 7 U.S.C. § 2(e); and Regulation 32, as amended, to be codified at 17 C.F.R. § 32 (2011);”

In English: the government says that many of the things Intrade allows people to predict – everything from what the price of gold will be in the future to whether the U.S. will go to war soon – are legally considered “commodity options,” and that Intrade broke the law because it isn’t licensed to trade those. The penalty is $140,000 per violation.

In a press release, the CFTC’s chief enforcer went out of his way to target “prediction markets”:

“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… traded on a CFTC-registered exchange… Today’s action should make it clear that we will intervene in the ‘prediction’ markets, wherever they may be based.”

Why doesn’t Intrade just obey the complicated law and become a licensed exchange? They tried, but the CFTC won’t give them a license. When an established, licensed U.S. commodity exchange applied for permission to do what Intrade does, the CFTC turned them down, too.

The pompous CFTC enforcer claims that the regulation “is important for a number of reasons, including that it enables the CFTC to police market activity.”

Please. These regulations don’t help police market activity. When people make money on Intrade, Intrade sends them the money. There are no allegations of fraud. Customers are happy with Intrade, judging by increased activity on the site (over $50 million was bet about whether Obama or Romney would win.)

The market polices itself.

Update: Brian Caplan wants a 1st Amendment challenge for prediction markets.

[tweet https://twitter.com/bryan_caplan/status/273264205501718529]

More from Caplan here:

The CFTC’s real complaint is that consumers eagerly bet on Intrade because the company exemplifies market integrity: “I trust Intrade with my money because of their reputation, not government regulation.”  Reputation: That’s the same mechanism, of course, that underlies eBay, Amazon Marketplace, and the whole cornucopia of internet commerce that the mainstream information economist of 1990 would have dismissed as free-market Fantasy Island.

If the CFTC really wants to protect market integrity, it should start by publicly admitting that if the CFTC ever served a useful function, that time has long since passed.  Americans send money to Intrade because Intrade delivers the goods (and produces the positive externality of accurate forecasts in the process!).

In the information age, firms’ reputations are just a click away.  That’s all the protection any consumer needs.  The only people the CFTC is “protecting” are their own obsolete employees.

This is something I have in mind for the future. Unsurprisingly, Larry Ribstein wrote about this 18 months ago.