The Commodity and Futures Trading Commission (CFTC) fired back last week in an appeal proceeding at light speed over whether the popular election betting prediction site PredictIt will close, at least temporarily, on February 15 at 11:59 PM.
Oral arguments in the case have been scheduled for Wednesday, but the Fifth Circuit Court of Appeals already granted relief from the scheduled shutdown, issuing an injunction letting the site continue operating while the appellate process plays out.
Closure of the site would leave the United States with only one CFTC-permitted election betting market, the Iowa Electronic Markets, which operate on a much smaller scale than those markets offered by PredictIt.
How did we get here?
Back in 2014, the CFTC issued a no-action letter to Victoria University (in New Zealand) to operate markets related to political events. Victoria University would contract with Aristotle to operate the markets via the site PredictIt.
Over time, PredictIt grew in popularity. Not only did PredictIt become popular with users and those looking to test their election betting abilities, but the site provided a lot of data for researchers looking to understand many different things, including decision-making.
The market also had another effect: it was incredibly good at forecasting the outcomes of political events, even better than many of the top political prognosticators. This led to the site featuring prominently during election coverage across various media platforms.
Things go south at CFTC
In 2022, the CFTC sent PredictIt a letter detailing that in the organization’s view: the markets were no longer being operated in accordance with the 2014 no-action letter. As a result, the markets were to cease operating on February 15.
The revocation letter effectively meant that if PredictIt continued operating it would be at risk of being sanctioned by the CFTC. The letter was light on details of the purported breach of the 2014 letter’s terms, which would lead a number of stakeholders (though not Victoria University) to sue the CFTC.
The lawsuit filed in an Austin, Texas federal courthouse, seemed on a path that would see the case sent to a federal court in the District of Columbia, where the CFTC is headquartered. That was until the stakeholders appealed and the Fifth Circuit issued an injunction, which has granted a reprieve, if temporarily until a panel of judges can rule on the appeal.
The Fifth Circuit has put the appeal on hyperdrive, recognizing the looming shutdown, but even mach speed would likely not result in a decision from a three-judge panel before the expiration of the CFTC’s deadline — hence the injunction buying additional time.
PredictIt appeal for election betting
The appellants, who are the stakeholders supporting PredictIt’s continued existence, filed their opening brief on January 27 and effectively argued that the CFTC overstepped its authority and demanded the shutdown of the site without considering less drastic alternatives. Additionally, the appellants argued that left to stand, the revocation of the no-action letter would leave the agency without judicial oversight.
The CFTC, in response, opens its argument by claiming that the appellants’ claims are “meritless,” under the Administrative Procedure Act. Typically, courts are only able to review administrative agency decisions if they are the result of a final agency rule or action.
The CFTC argues that the revocation of the 2014 letter is no such thing and is therefore not subject to judicial review. CFTC goes on to advocate as part of their first argument that the appellants lack standing to bring these claims. The brief articulates that the alleged harm to be suffered by a PredictIt shutdown would be downstream to the appellants, stemming
from Victoria University’s hypothetical decision to continue or cease operating PredictIt—and if either, in what form—depending on the outcome of these proceedings.
Who (didn’t) hurt you?
The CFTC goes on to conclude its arguments by articulating its belief that the stakeholders are too soon to the table, as the agency has not taken any action against PredictIt.
The federal agency continues by arguing that the plaintiffs are not going to suffer irreparable harm from the revocation of the letter, because there is no clear indication of what Victoria University plans to do as a result of the revocation. In other words, the CFTC is effectively arguing that the plaintiffs are speculating on what potential harm they might suffer because no one knows what will happen to PredictIt.
The PredictIt plaintiffs received a boost from the Institute for Justice, which filed an amicus brief arguing that the CFTC “demands obedience without judicial accountability.” The brief argues that the CFTC is only one of many government agencies that evades judicial scrutiny through administrative letters, which has been argued lacks the finality necessary for review. The brief concludes that the PredictIt group should have its day in court, stating:
The CFTC’s position is not simply inconsistent with common sense and the ancient duty to act in good faith with those who trusted you. It is also inconsistent with precedent. The Supreme Court has long held that
the ability to sue is based on practical, real-world injuries, not just government org charts.
What is next on PredictIt election betting?
As mentioned, this case is moving swiftly.
Monday was the day for the PredictIt side to reply to the CFTC’s brief. While we will expect a decision from the Fifth Circuit quickly given the streamlining of the case, it is not expected before the original shutdown date of February 15.