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Legality of Trading

Intrade's FAQ declines to express any opinion on the fundamental question of whether placing an Intrade wager violates the law. IMHO, it is irresponsible of Intrade to offer a service without offering any suggestions or guidelines as to whether it might be illegal to partake of such a service or not, or whether it is an unsettled question of law. I have to assume that since Intrade is shy of endorsing the legality of internet trading that it is technically forbidden, at least in the USA, and therefore, I will have to abstain from trading for fear of breaking the law.

Too bad. I am an economist who sincerely believes in the wisdom of crowds and the vital importance of prediction markets. I believe that if the law is wrong, you have a moral obligation to work to change it. I wonder what Intrade is doing in this regard.
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  • Wikipedia weighs in, but is it correct?:

    According to Wikipedia,

    Because online gambling is outlawed in the United States through federal laws and many state laws as well, most prediction markets that target U.S. users operate with "play money" rather than "real money": they are free to play (no purchase necessary) and usually offer prizes to the best traders as incentives to participate. Notable exceptions are Intrade/TradeSports, which escapes U.S. legal restrictions by operating from Dublin, Ireland, where gambling is legal and regulated, the Iowa Electronic Markets, which operates from the University of Iowa under the cover of a no-action letter from the Commodity Futures Trading Commission and allows bets up to $500.

    But is Wikipedia correct?

    Technically, I think it is. However US law frequently imposes restrictions on US citizens regardless of whether the act can be construed to take place in a foreign country. One of the primary bases of jurisdiction is residence of the defendant. Therefore, Wikipedia may be correct that Intrade escapes U.S. legal restrictions. However, Intrade's US clientele may not be so lucky.

    ColesLaw
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  • Dear ColesLaw,

    Your post raises a number of important points. We hope this additional transparency is helpful for all.

    As you may already know...

    1. Intrade is and has looked to have the issue you raise clarified, most recently by lodging a public comment on the Federal Register on foot of requests for comments from the US Commodities Futures Trade Commission. You may see our public comment here http://www.cftc.gov/stellent/groups/p...

    2. We have members from over 160 countries globally. We, like many other companies, do not offer legal advice on whether using our service from any jurisdiction is in compliance with local laws. We place an onus of responsibility on the user as detailed in our FAQ’s and terms and conditions of membership. Further, if we were to offer legal or indeed tax advice on a matter and laws of precedents were to change we would be in a potentially difficult situation.

    3. We advice all who are uncertain about such matter to contact their own legal advisors, just as investment firms do when you consider investing in any product.

    Thank you again for raising this point. We would love to be able to guarantee legal, tax and other treatments in all jurisdictions, especially places like the USA from where we have many members but at this time that is unfortunately not possible.

    Sincerely,

    Sheena
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  • Dear Sheena,

    Thank you for your thorough and thoughtful reply to my post. Your post also raises in my mind a number of important issues:

    Why are some nations, including Germany and the US, trying to prohibit internet gaming when they permit and even encourage many other forms of gambling?

    What countries expressly allow internet gaming?

    Have any countries or jurisdictions yet carved out an express safe harbor or exemption from online gaming prohibition for prediction markets?

    Has your industry yet formed any lobbying organizations to promote effective regulation of this nascent industry?

    Best,
    ColesLaw
    • According to the Boston University Law Review:

      http://www.bu.edu/law/central/jd/orga...

      ...investing is identical to gambling. The U.S. has banned online gambling for these reasons:

      - protectionism
      - insufficient tax revenue from foreign operators
      - discrimination (upper class are allowed to gamble, but not lower class)

      The U.S. government, and most governments, are the world's biggest promoters of gambling, and of the worst kind which is based on 100% chance. The U.S. runs lotteries that have jackpots of $640 million. At least, Poker and Prediction requires skill.

      It's pure hypocrisy. The government's mantra is: Do as I say, not as I do.
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  • Hi ColesLaw. Thanks for posting up a reply.

    Unfortunately it is very difficult to comment on the legal situation in other countries. We operate legally from the Republic of Ireland, where both internet gambling and perdiction markets are permitted. I will seek further comment on this and post again afterwards.

    Intrade has been active in the creation of the Prediction Market Industry Association. Details of this organisation, it's members and agenda can be found here: http://www.pmindustry.org/.
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  • Is there any more current information available about the legality of USA citizens using Intrade?
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