Hope springs eternal for PredictIt, as the Commodities & Futures Trading Commission (CFTC) has failed in its attempt to have the former’s court case thrown out.
Those following the PredictIt saga know that as things stand, the site will have to shut down next month. That’s due to the CFTC’s revocation of a no-action letter promising not to seek legal action against the political predictions market operator.
Last night, a three-judge panel from the Fifth Circuit Court of Appeals gave a little life to the hopes of PredictIt and its users. Two minutes before 5:00 p.m., Judges Elrod, Graves, and Ho a per curiam – a unanimous but unsigned and unpublished order – denying the CFTC’s motion to dismiss. The CFTC had sought to have the case tossed for lack of jurisdiction. Instead, the judges have expedited the appeal to the next available merits panel. An updated briefing schedule came out shortly following the order.
That’s a significant win for the plaintiffs in the case, who were in dire need of some good news following an early setback. However, time is still ticking, and the three-judge panel did not issue the injunction the plaintiffs sought. Instead, it left the request for the merits panel to consider.
The New PredictIt Case Schedule
The Fifth Circuit clerk issued a briefing schedule for the appeal on Jan 18, 2023. It includes the following due dates:
- Jan 25, 2023: Plaintiffs’ brief
- Feb 1, 2023: CFTC’s brief
- Feb 6, 2023: Plaintiffs’ reply
Following the filing of briefs, the Fifth Circuit has cleared the week of Feb 6 for oral arguments. The exact time and date for the hearing will appear on the Court of Appeals’ website in advance.
The expedited schedule means that the Court likely sees the Feb 15 date as pressing. It is moving as quickly as possible to resolve the appeal before the deadline. There is no guarantee that a decision will be favorable to the plaintiffs or even arrive in time. However, it’s clearly good news for the plaintiffs that the Fifth Circuit has decided to proceed with the appeal.
Reviewing the PredictIt Story to Date
The case originates with the CFTC’s 2014 no-action letter to Victoria University in Wellington, New Zealand. It provided the University protection to operate an exchange offering politically-based futures contracts. Although technically not a gambling product, these are, in practical terms, bets on political outcomes made between users of PredictIt.
Victoria University contracted with a private company, Aristotle International, to operate the exchange. In August 2022, the CFTC sent a second letter to the university declaring the market was no longer in compliance with the terms of the letter. Therefore, any protection provided by the letter would cease to exist after Feb 15, 2023.
The letter did not identify any specific breach, but it seems likely that PredictIt had grown bigger than the CFTC was comfortable with. The effect of the revocation put a countdown clock on the viability of the markets, as operating without the no-action would expose the operators to significant legal risk. Unfortunately, some open contracts won’t have reached their conclusion before the shutdown date, leaving PredictIt in a predicament.
Shortly after the letter was made public, a group of users joined forces with PredictIt and Aristotle to file suit. Notably absent from the list of plaintiffs, however, is Victoria University.
The plaintiffs filed their lawsuit against the CFTC in a federal courthouse in Austin, Texas, seeking to prevent the shutdown. In response, the CFTC sought to dismiss the case and, failing that, to transfer it to Washington, DC. The District Court ruled in favor of the transfer but left the question of dismissal to the D.C.-based judges.
That defeat seemed likely to spell at least a temporary shutdown of the site. However, the plaintiffs responded with an appeal in the Fifth Circuit, seeking three things:
- An injunction staying the looming shutdown, pending the resolution of the appeal;
- An injunction pursuant to 5 USC § 705, which is an injunction granted to stop agency action pending judicial review; or
- In the alternative, a writ of mandamus, where the Court of Appeals would direct the District Court to issue an injunction.
The plaintiffs argue that without an injunction, the site’s shutdown will exacerbate the ongoing harm caused by the legal uncertainty around PredictIt. They say that additional damage is irreversible even if the site were to relaunch at a later point in time.
For its part, the CFTC has opposed the plaintiffs’ requests. It argues that the case should proceed directly to DC and that no injunction is necessary. The CFTC filed a motion to dismiss the appeal for lack of jurisdiction.
What’s Next in the PredictIt Case?
The denial of the CFTC’s motion to dismiss sets this case up for oral arguments on a tight timeline.
The Fifth Circuit is not messing around. It appears committed to trying its best to decide whether to issue an injunction before the Feb 15 shutdown date.
That said, a lot still needs to go right for the plaintiffs if markets will remain come Feb 16 and for trading to continue. However, reaching the stage of oral arguments in the Fifth Circuit is no small accomplishment. Those in PredictIt’s corner can celebrate having even a fighting chance.
There isn’t much of a Plan B for electoral speculation in the US. Those who follow political markets are still awaiting official word from the CFTC on Kalshi’s efforts to offer political markets. However, it’s widely believed that the CFTC will deny the request.