A New Zealand university has been grilled by American regulators over its operation of a political predictions market, including allegations it secretly ceded control to a private corporation.
Users (who must be United States citizens or residents) can buy shares on the outcome of a future event, with the ‘winning’ option paying out at $1.
While the commission shied away from specifics in its order last year, it has now provided further detail about the alleged breaches as part of legal action taken to prevent PredictIt’s closure.
In a March 3 letter to Victoria University’s vice-provost for research Margaret Hyland, the commission said it had granted permission for PredictIt on the grounds it was operated by the university itself, “It appears at some point the university ceded operation control of the market to Aristotle, a for-profit corporation” originally brought on to handle administrative issues such as identity verification.
“Indeed, recent public statements reflect that the university may not have been operating the market since its inception and rather that Aristotle played a leading – and undisclosed – role in the development and launch of the market,” the commission’s market oversight division director Vincent McGonagle said.
McGonagle said the university also appeared to have breached a commitment that the website would be operated and overseen by its faculty without any compensation. In addition, the fees charged by Aristotle for identity verification and payment processing – 10 percent of all profits, plus a separate 5 percent fee on withdrawals – seemed “likely to generate funds far greater than those necessary to operate a small-scale market”.
“As such, it appears facially inconsistent with the university’s representation that it would conduct a small-scale, non-profit operation, covering only basic expenses.”
PredictIt had been granted permission to offer two types of futures contracts: those related to economic indicators such as monetary policy decisions, and those for political events such as who would win presidential primaries and the general election or control of Congress.
However, McGonagle said a number of the contracts listed by the website went beyond those criteria, such as how many Ebola cases the US would have in 2015, how many tweets Donald Trump would post across the course of a week, and whether federal charges would be confirmed against Hunter Biden (the son of US President Joe Biden).
“Despite multiple interactions … to address these violations of the letter’s conditions, the market has persisted for years to list contracts outside of the two submarkets.”
McGonagle said commission staff had spent considerable time over the past nine years dealing with PredictIt’s repeated violations, which in their view was “not an appropriate use of taxpayer resources”.
That was among the reasons the regulator was opposed to allowing PredictIt to continue operating until after the 2024 US elections, when a number of its markets would close.
In January, Aristotle and others successfully asked the US Fifth Circuit Court of Appeals for an injunction allowing the website to run past its scheduled February 15 closure, until a substantive court ruling could be made.
“The university believes it has been transparent and has engaged in good faith regarding the operation of PredictIt and how this has changed over time, including the role of Aristotle International, Inc.”
– Margaret Hyland, Victoria University of Wellington
In a written statement, Hyland told Newsroom the university respected the commission but “strongly disagrees with the version of events put forward … in its recent letter proposing to withdraw the ‘no action’ letter”.
It had provided a “detailed and robust response” to the commission regarding the claims it had made about PredictIt, she said.
“In particular, the university believes it has been transparent and has engaged in good faith regarding the operation of PredictIt and how this has changed over time, including the role of Aristotle International, Inc.”
Hyland said the university had not made any money from PredictIt, with the only payment being a US$2000 monthly payment to Wellington UniVentures for offsetting operating costs.
“The university’s goal in relation to the PredictIt platform has been purely to support its development as a research and educational tool for the international research community of which we are a part.”
It was not a party to the legal action between Aristotle and the commission, and no university resources had been used in relation to the lawsuit.
While the university believed the commission’s no-action letter should not be withdrawn, Hyland said it would respond as needed to any legal requirements regarding PredictIt’s operation.
Aristotle did not respond to a request for comment, while the commission referred Newsroom’s questions to the court and the university.