Katherin Mangu-Ward has a great profile of the rise and downfall of Intrade at Reason:
But just 20 days after Intrade’s electoral triumph, the federal government launched proceedings that would eventually shut the site down. On November 26, the U.S. Commodity Futures Trading Commission (CFTC) filed suit in a Washington, D.C., district court against the Ireland-based firm, alleging that Intrade had violated a ban on unregulated options trading.
“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,” David Meister, director of the commission’s enforcement division, wrote in a statement heavy on both legalese and sneer quotes. The statement specifically mentioned Intrade markets pertaining to the price of gold and currencies-turf that traditional commodities markets usually occupy.
While the government cited no evidence of harm, it claimed that the rules Intrade broke “enable the CFTC to police market activity and protect market integrity.” The CFTC said it would seek “civil monetary penalties, disgorgement of ill-gotten gains, and permanent injunctions against further violations of federal commodities law.”
The following Monday, citing “legal and regulatory pressures,” Intrade announced that U.S. traders had little more than a month to empty their accounts. “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.”
With the Americans out, Intrade quickly dwindled to a shadow of its former self. By March volume had fallen to a meager 50,000 trades for the year. On the 10th of that month, a somewhat cryptic message appeared on the site’s main page announcing that all trading had been shut down after the discovery of “financial irregularities” that ran afoul of Irish law.
And that was that. The Intrade experiment-and much of the promise of public prediction markets-had been squashed by overzealous regulators.
I have been in touch with counsel representing InTrade, and am preparing an amicus brief on their behalf with respect to First Amendment issues. Though, it seems that the litigation is currently stalled in discovery disputes (shocker) so nothing new for now.