The plaintiffs in the PredictIt case have obtained an injunction to keep the site up and running temporarily. That’s an essential reprieve with the original Feb 15 shutdown deadline now less than three weeks away.
On Jan 18, the Fifth Circuit Court of Appeals in New Orleans laid out a timeline for the case. PredictIt, a popular political prediction market site, was facing impending closure. The order to shut down came directly from the Commodity Futures Trading Commission (CFTC).
Earlier in January, a federal District Court in Austin, Texas, agreed to transfer the case to the District of Columbia.
Before the case could proceed in DC, the plaintiffs filed an appeal. These plaintiffs include PredictIt, its operator Aristotle, and a group of affected users. Missing from the case, however, is Victoria University.
Victoria University received CFTC permission in 2014 to operate the site for educational purposes. The withdrawal of that permission by the CFTC precipitated the lawsuit.
Small Victories for the Plaintiffs
When the court denied the CFTC’s attempt to dismiss the appeal, things started to look up for the plaintiffs. The Court of Appeals then laid out a timeline, scheduling oral arguments for Feb 8 in New Orleans. There will be a live stream available for the hearing.
In surprising news, the Fifth Circuit issued an injunction at the end of the day on Jan 26. That was the same day the appelants’ brief was due.
The injunction provides some immediate breathing room for PredictIt. It’ll also come as a relief to traders who were feeling the pressure of the Feb 15 deadline.
It’s important to note that this remains a temporary win. It only provides some time for the appeal to play out in the coming weeks. At the same time, it appears to indicate that the court does not expect to make a decision before Feb 15, even with its expedited timeline.
The Impending Shutdown
PredictIt has been the most visible prediction market serving the US. It’s one of two that received a no-action letter from the CFTC allowing them to offer contracts on political futures.
These include contracts (wagers, effectively) on propositions such as who will be the next US president. The site’s popularity has grown to the point that it is frequently cited alongside polls and expert pundits during election coverage.
Historically, the accuracy of prediction markets has surpassed traditional polling and expert predictions. That “wisdom of crowds” has long been of interest to academics. Even the US military sees it as a way of understanding decision-making.
Nonetheless, the CFTC determined that the site was no longer in compliance with the terms of its letter. It notified Victoria University that the site was to close out all contracts by Feb 15. The revocation effectively spelled the end for PredictIt.
The Plaintiffs’ Argument
In their brief, the appellants present three arguments in favor of a reprieve for PredictIt.
The first cuts to the heart of the larger case. The appellants argue that the CFTC’s order to close the markets is “arbitrary and capricious.”
The appellants state:
The CFTC’s mandate to close the PredictIt Market manifestly fails [to meet legal] standards. The CFTC made no attempt below to demonstrate that its mandate to close the PredictIt Market was the product of reasoned decisionmaking or otherwise complied with the substantive requirements of the Administrative Procedure Act.
Next, the brief claims that the letter revoking the permission to operate failed to explain adequately why the CFTC had made its decision.
Finally, the PredictIt stakeholders argue that the CFTC could have considered alternatives. They claim there were better options than shutting down the markets entirely.
A Matter of Transparency
The appellants argue that the CFTC’s reasoning if accepted, would set a bad precedent. The CFTC feels its decision to revoke the no-action letter was not subject to judicial review. However, the appellants say this logic would effectively limit judicial scrutiny of all decision-making by the agency.
The brief points out that the Administrative Procedure Act creates a process by which agencies can revoke something like a no-action letter. However, it maintains that the CFTC did not follow the process in this case.
Next Steps in the PredictIt Case
The CFTC is sure to provide its own arguments to refute those of the appellants. In the meantime, the granting of an injunction by the Court of Appeals is an immediate win for PredictIt, though temporary in nature.
Oral arguments for the case are coming up on Feb 8. There will be a panel of three judges hearing the case. We’ll know their identities on Monday, Feb 6. It will, in all likelihood, be a different group than those who have just granted the injunction.