Political betting site PredictIt faces an uphill legal challenge following a decision by the Commodity Futures Trading Commission to rescind their letter granting New Zealand’s Victoria University of Wellington the right to operate a not-for-profit contract market for the purposes of educational enrichment.
Victoria University, which first received the no-action letter from CFCT in 2014, will no longer be able to continue its operations if its legal challenge to the reversal fails.
A no-action letter is issued by CFTC’s Division of the Commission indicating that it does not recommend that the Commission commence enforcement action for failure to comply with a specific rule.
It was with this no-action letter in hand that PredictIt was able to operate legally in the United States. Now, the continued existence of the website hangs in the balance of the Fifth Circuit Court of Appeals.
On Jan. 26, PredictIt was granted an injunction pending their appeal.
On Aug. 4, CFTC announced the withdrawal of its no-action letter from the university. CFTC itemized the conditions found in the initial letter and closed by asserting that the university had, in some way, violated these conditions. It did not elaborate or specify which provision was violated.
That 2014 no-action letter set several parameters that PredictIt was obligated to operate within should it wish to continue receiving relief in the form of inaction from CFCT. Among those provisions were rules put in place to ensure that the market was utilized for educational purposes. The site administrators were to be members of the university faculty and were ineligible for additional compensation related to the project. Additionally, trader investments were limited to $850 per contract and each contract had a hard limit of 5,000 participating traders.
The market was obligated to perform typical know-your-customer procedures and, in fulfilling this requirement, allowed to apply modest fees to withdrawals.
For now, Predictit continues to operate but has not initiated any new markets. Investors are able to deposit, withdraw, and purchase contracts on the remaining markets which will now continue to run their course until the Fifth Circuit Court of Appeals makes its ruling.