Things have heated up quickly since the Commodity Futures Trading Commission (CFTC) filed a motion to dismiss the lawsuit seeking to avert PredictIt‘s shutdown.
The plaintiffs countered with a motion seeking to expedite the hearing. They’re hoping to obtain a preliminary injunction before Christmas. Without judicial intervention, the site will need to shut down by February 15, 2023.
The plaintiffs argue that the legal limbo surrounding the political betting site is already beginning to distort the market. Some propositions – such as those involving the 2024 presidential election and its primaries – won’t have been resolved by the deadline. Uncertainty about how PredictIt will settle them is affecting their pricing.
Meanwhile, the CFTC is trucking right along with its motion to dismiss, having filed its reply. The Austin-based Western District of Texas federal court has set a hearing on the defendant’s motion for December 1. So, there could well be a decision in the case before the end of December.
Let’s Get the Ball Rolling
The plaintiffs in the case are a collection of parties with varying interests in the site. They are asking the District Court to get things moving because time isn’t PredictIt’s friend at the moment.
The plaintiffs filed their motion for a preliminary injunction in late September. That came very shortly after the CFTC gave notice that it was revoking the No-Action letter allowing the site to operate.
PredictIt has been one of only two political betting markets operating legally in the United States. Another predictions market, Kalshi, sought CFTC’s authorization to offer political contracts. However, the CFTC denied the request.
While political betting is incredibly popular and regulated in many parts of the world, the practice is highly restricted in the U.S. The CFTC has only allowed two academic institutions to use such sites for research purposes. If PredictIt does have to shut down, the Iowa Electronic Markets will be the only lawful option for election betting in the United States.
The plaintiffs argue that the preliminary injunction matter was ready to be argued on October 20. However, there is still no date for a hearing.
Suspicious Market Movements
The plaintiffs argue that the looming February shutdown has already caused irreparable harm and that it will only get worse.
One of the plaintiffs cites odd market behavior around potential Republican presidential nominees. The brief notes that the abnormal price behavior may be the result of users knowing that it’s unlikely that the market will even be open by the time the nominee is known.
The plaintiffs note that the market liquidity is drying up. That is, users are leaving the site, and would-be sellers are having a hard time finding buyers for their shares.
The plaintiffs are asking the CFTC’s ultimatum to be put on hold pending a full trial on the case’s merits.
What Can the Court Consider?
For its part, the CFTC filed its reply brief supporting its motion to dismiss. The CFTC’s brief opens by accusing the plaintiffs of taking a shotgun approach, presenting every possible argument and seeing if anything will hit.
The CFTC is relying heavily on precedent. It highlights that the Seventh Circuit and the D.C. Circuit have both found that No-Action letters issued by the SEC are not reviewable by a court. It also takes issue with the plaintiffs’ characterization of the 2014 CFTC letter as a “license,” stressing that it was only a written assurance that staff would not recommend enforcement action.
Similarly, the CFTC argues that the withdrawal letter issued merely retracts the promise of that earlier letter. It says this is not the same as an enforcement action or legal decision.
The reply notes:
Plaintiffs do not allege that DMO has recommended an enforcement action, nor did DMO even commit to doing so if the February 2023 grace period is not observed. Instead DMO stated that PredictIt ‘should’ comply and implies, if not, DMO might make a recommendation.
The CFTC suggests that withdrawing the letter is not a final agency action. It argues that the letters are written by staff and not approved by the CFTC’s commissioners. Therefore, while enforcement action could be subject to appeal, simply withdrawing the letter is not, according to the agency.
It concludes its arguments by asserting that the plaintiffs lack standing to bring the claim.
What’s Next for the PredictIt Case?
A hearing on the motion to dismiss will take place on December 1. The judge will be George W. Bush’s federal bench appointee Lee Yeakel.
Judge Yeakel is perhaps most recently associated with striking down Texas Governor Greg Abbott’s school mask mandate ban. That decision would later be vacated by the Fifth Circuit Court of Appeals.
While the federal court process is usually slow, it is not generally indifferent to deadlines. For this reason, a decision seems likely to come in relatively short order.
Whether that is a decision denying the motion to dismiss is a question we do not yet have an answer to. However, such a decision for the CFTC would mean that PredictIt has to shut down in February, even if the plaintiffs decide to appeal.