Plaintiffs in the litigation challenging the looming shutdown of PredictIt have filed a motion to allow for a supplemental memorandum.
PredictIt’s fate has been in jeopardy since the Commodities and Futures Trading Commission (CFTC) withdrew the No-Action letter allowing the election prediction market to operate. A federal court heard oral arguments for the case on Dec 1. The plaintiffs’ filing was in response to some novel issues that arose during those arguments.
In the short three-page motion, the plaintiffs argue that “the Court raised several concerns, including concerns not addressed in prior briefing or to which intervening precedent is relevant.”
Accompanying the motion are a seven-page memorandum and supporting documents. These include declarations from two of the plaintiffs.
How We Got Here
PredictIt is the brainchild of researchers at Victoria University in New Zealand. However, it’s a private gaming company, Aristotle International, which operates the site on the University’s behalf.
Aristotle and Victory University have been able to accept US traders thanks to the CFTC’s promise in 2014 not to take enforcement action. However, this No-Action letter was not a carte blanche to the exchange. The Commission’s blessing was contingent on the exchange operating as outlined in the letter. That included vague limitations on the scale of the operation.
In August, the CFTC issued a notice revoking the No-Action letter. The details were slim, but the CFTC stated that its Division of Market Oversight “has determined that Victoria University has not operated its market in compliance with the terms of the letter and as a result has withdrawn it.”
The CFTC also ordered the exchange to close out all contracts by Feb 15, 2023, at 11:59 PM.
Voices of Support for PredictIt
The dismayed reaction from those who use or study PredictIt was immediate. Many traders were concerned about what it would mean for their futures contracts, including those that would not yet be resolved by the deadline. These include, for instance, predictions relating to the 2024 Presidential election and its primaries.
Within weeks of the revocation letter, a group of plaintiffs filed suit against the CFTC. These include the operator, Aristotle International, but notably not Victoria University. That could prove to be the suit’s undoing.
The plaintiffs are challenging the agency’s revocation of the No-Action letter and highlighting the potential harm they would suffer if the markets were to shut down. In late October, the CFTC filed a motion to dismiss the case. It argues that the decision on the No-Action letter was not subject to challenge under the Administrative Procedure Act, as it was not itself an enforcement action, only the withdrawal of a promise not to act.
These points were the thrust of the Dec 1 oral arguments. The Court’s docket includes a note that a written decision is forthcoming. However, seven days after oral arguments, the plaintiffs sought this supplemental filing.
What’s in the Supplemental Filing?
The plaintiffs seek to address concerns that came up during oral arguments but were not part of the earlier briefing. One of these is the possibility of a transfer of venue for the case. On that point, the memorandum argues:
Investors in PredictIt Market contracts are beneficiaries of the CFTC decision opening the Market and have the standing to anchor venue for this case. The lead Plaintiff—Kevin Clarke—chose to bring this case and is not a generic investor who could have been found in any judicial district. It also would be incorrect to infer from Victoria University’s absence as a formal plaintiff that PredictIt has become some sort of gambling operation.
Put plainly, the memo argues that the CFTC’s efforts to transfer this case to DC are not the appropriate standard. It also claims that the lead plaintiff, located within the Western District of Texas, has unique concerns that mean the case should remain with the Austin-based federal court.
Will Victoria University’s Absence as Plaintiff Doom the Case?
The other topic addressed in the memorandum is the fact that Victoria University hasn’t joined the suit as a plaintiff. The investor plaintiffs say that they – as well as the University – were beneficiaries of the No-Action letter. By that logic, they claim to be in a position to challenge the revocation even in the absence of the University’s participation.
The brief concludes by arguing that PredictIt continues to serve an essential academic purpose. That was one of the key justifications for the CFTC issuing the No-Action letter in the first place.
Indeed, PredictIt has pretty clearly achieved the requirement that it is engaged in assisting the academic community. The website lists dozens of academics who have used PredictIt data in their research. There are undoubtedly countless others who have used it as a teaching tool.
The plaintiffs argue that the court should not conclude that the underlying academic mission has changed in any way. They say that the market continues “to produce reliable data in the public interest.”
What Happens Now?
There are several ways things could go from here.
We could have the magistrate judge grant the motion. That would potentially create a situation where the CFTC then seeks to file a response in turn.
Conversely, we could have the magistrate judge deny the motion. In that case, the brief would not become part of the record.
A third possibility is that a ruling could come out which supersedes both the motion to dismiss and the motion to transfer.
Whatever the case, there is only a short time remaining before the February deadline. As such, we can expect some sort of decision in relatively short order.