Legal Decision Allows PredictIt to Remain Operational
A federal court has given the green light for PredictIt to continue running its political futures markets while it battles against a federal agency trying to close the platform down.
The US Fifth Circuit Court of Appeals panel recently decided that PredictIt and its users are most likely to win their lawsuit against the Commodity Futures Trading Commission (CFTC). In a 2-1 judgment, the judges instructed a lower court to impede the CFTC from taking any further actions against PredictIt until the case is fully analyzed.
"This is a major success for prediction markets such as PredictIt and those who find value in the insights they provide," PredictIt co-founder and CEO, John Phillips said in a statement. "One of the highest courts in the country has determined that PredictIt was granted a permit to function in 2014, and the CFTC's efforts to take this away were unjustified."
https://twitter.com/PredictIt/status/1683233182509446146?s=20
Next Steps
The matter now heads back to the United States District Court for the Western District of Texas for a trial in regards to the case's merits. The lawsuit was filed by PredictIt and several users who claimed that the CFTC infringed on due process when it withdrew assurances that PredictIt would not be subject to enforcement action.
"We are now of the belief that a preliminary injunction was necessary as the CFTC’s revocation of the no-action letter was likely arbitrary and capricious," Fifth Circuit Judge Stuart Kyle Duncan wrote in the majority opinion issued on Friday.
This news comes as part of an ongoing battle between PredictIt and the CFTC where the agency is pushing for PredictIt to register as a regulated marketplace under the Commodity Exchange Act. The platform was initially developed at Victoria University in Wellington, New Zealand, and enables users to place wagers on political events and elections.
The 'No-Action' Letter
When PredictIt began in 2014, Victoria University approached the CFTC for a 'no-action' letter, which exempted the platform from having to register as a regulated marketplace. The university explained that the political betting markets would generate important data for academic research and insisted that it would limit the size of its markets to 5,000 participants and restrict bets to $850.
Despite initially agreeing to exempt PredictIt from oversight in 2014, the CFTC controversially reversed its stance in August 2022, withdrawing the no-action letter and mandating PredictIt to exit operations within six months.
In reaction, PredictIt and a group of site users filed a lawsuit against the CFTC, and they managed to delay the agency's efforts to shut down the site through February.
On-going Controversy
Following these rulings and oral arguments in the legal case, the CFTC sought to end the litigation by replacing its previous action with a new preliminary decision on the no-action letter in March. The CFTC's Division of Market Oversight held firm in its opinion that the original no-action letter was invalid, but it also granted PredictIt an opportunity to make its case.
Judge Duncan dismissed the CFTC's claim that their March letter invalidated the case. "PredictIt and the CFTC are still at odds over whether PredictIt can engage in activities outside the Commodity Exchange Act's purview... The fact that Victoria University can attempt to alter the DMO's stance does not take away the fact that the DMO has declared the no-action letter 'void'," the judge wrote in his opinion.
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