United States District Court, District of Columbia
C. LAMBERTH UNITED STATES DISTRICT JUDGE
the Court is plaintiff Commodity Futures Trading
Commission's Motion and Brief in Support as to the
Appropriate Amount of Disgorgement and Civil Monetary
Penalties for defendants Intrade The Prediction Market
Limited and Trade Exchange Network's Violations of the
Commodity Exchange Act and Commission Regulations. ECF No.
71. Upon consideration, the Court GRANTS
plaintiffs Motion for an assessment of a civil monetary
penalty ("CMP") of $3 million and post-judgment
interest against defendants; for which they are to be held
jointly and severally liable.
plaintiff Commodity Futures Trading Commission
("CFTC") ("plaintiff) is an independent
federal regulatory agency tasked by Congress with overseeing
and enforcing the Commodity Exchange Act ("CEA"),
the CEA as Amended by the Dodd-Frank Act, and the regulations
enacted thereunder ("Commission Regulations"). ECF
No. 1 at ¶ 13.
Intrade The Prediction Market Limited ("Intrade")
and Trade Exchange Network ("TEN") are companies
organized under the laws of Ireland. ECF No. 7 at
¶¶ 14-15. In 2007, TEN deconsolidated into three
distinct entities. TEN's 3d Supp. Resp. Interrog. No. 6,
ECF No. 51-2. Following this deconsolidation, "which
took effect on or about February 28, 2007, TEN transferred
its non-sports prediction markets and technology-related
intellectual property to defendant Intrade."
Id. Following this transfer, a majority of
Intrade's shareholders also held shares of TEN. ECF No.
47-1 at ¶ 47. Additionally, defendants had the same
overlapping directors and officers. ECF No. 47-1 at ¶
48. Defendants also operated from "the same
premises" during the period pertinent to plaintiffs
complaint. ECF No. 47-1 at ¶¶ 51, 64.
November 26, 2012, plaintiff CFTC filed its three-count
Complaint for Permanent Injunction, Civil Monetary Penalty,
and Other Equitable Relief ("Complaint") against
defendants TEN and Intrade in this Court. ECF No. 1.
of the Complaint alleges that during the period of September
2007 through June 25, 2012 ("the relevant period"),
defendants offered, solicited, and accepted orders from U.S.
customers via www.intrade.com for the trading of off-exchange
binary option contracts, allowing U.S. customers to predict
whether or not a certain event would occur in the future. ECF
No. 1 at ¶¶ 5, 17, 19-25. These binary options
included predictions regarding future crude oil prices,
fluctuations in the U.S. unemployment rate, and the
probability of future acts of war. Id. at
¶¶ 5, 20. By allowing U.S. customers to trade these
binary options, the Complaint alleges, defendants violated
Section 4c(b) of the CEA and Commission Regulation
("Regulation") 32.11, 17 C.F.R. § 32.11. ECF
No. 1 at ¶¶41-43.
II of the Complaint alleges that TEN defied a 2005
administrative order entered against it by the CFTC
("2005 Commission Order"). Id. at
¶¶ 47-51. The 2005 Commission Order alleged that
TEN violated Section 4c(b) of the CEA, 7 U.S.C. § 6c(b),
and Regulation 32.11, by "soliciting and accepting
orders from U.S. residents for commodity options not
otherwise excepted or exempted from the Commission's ban
on options" through its affiliated websites including
intrade.com. Trade Exchange Network, Comm. Fut. L. Rep.
¶ 30135 (CFTC Sept. 29, 2005) ("2005 Commission
Order"), ECF No. 47-3; ECF No. 1 ¶ 1. TEN consented
to the entry of the 2005 Commission Order. 2005 Commission
Order; ECF No. 47-2 ¶ 1. As part of the 2005 Commission
Order, TEN agreed not to violate Section 4c(b) of the CEA and
Regulation 32.11 in the future, to pay a CMP of $150, 000,
and to carry out additional requirements, including notifying
its U.S. customers that certain contracts were off limits for
trading on TEN's trading platforms via a pop-up notice.
2005 Commission Order at 3, 5. The Complaint alleges that TEN
offered contracts for trade to U.S. customers that were off
limits under the 2005 Commission Order, failed to provide the
aforementioned pop-up notices to users of its website during
the relevant period, neglected to notify the CFTC of its
intent to change the individual designated to receive written
requests arising from the 2005 Commission Order, and failed
to designate a new representative following the prior
designee's withdrawal. ECF No. 1 at ¶¶ 29-33,
Court granted plaintiffs Motion for Summary Judgment as to
Counts I and II of the Complaint (ECF No. 47) and found that
TEN and Intrade violated Section 4c(b) of the CEA and
Regulation 32.11 by permitting U.S. customers to trade 5, 503
option contracts involving Commission-regulated commodities
during the relevant period. ECF No. 60. The Court also found
that TEN violated the 2005 Commission Order by (1) allowing
for U.S. customers to trade those 5, 503 option contracts,
(2) failing to have blocks in place for U.S. customers on 2,
027 prohibited option contracts, (3) lifting blocks on
prohibited option contracts, and (4) failing to notify the
CFTC of its intent to change its U.S. representative within
fourteen days of the change. ECF No. 60.
filed its Motion as to the Appropriate Amount of Disgorgement
and Civil Monetary Penalties for Defendants' Violations
of the Commodity Exchange Act and Commission Regulations. ECF
No. 71. With regard to the appropriate CMP, plaintiff argued
that the Court should impose a CMP, jointly and severally, of
"not less than $3 [million]" against defendants.
ECF No. 71 at 2.
the appropriate amount of disgorgement, the Court granted the
parties' Joint Motion for Entry of Consent Order
Regarding Distribution of Disgorgement Amount, in which they
agreed to disgorge $248, 334.74 of defendants' funds held
in an affiliate company's bank account. ECF Nos. 87 and
without opposition from defendants, filed a motion to vacate
the portion of the Court's Consent Order terminating the
case, which the Court granted. ECF Nos. 89 and 90. Plaintiff
notified the Court that defendants' appointed
liquidator-Bermingham & Company-had made a complete
disbursement of the disgorgement fund specified in the
Court's Order and identified the proper amount for a CMP