March 11 (Bloomberg) -- Intrade, an online service that lets people bet with one another on events such as elections and the weather, ceased trading activity, saying it is investigating possible financial irregularities.
The firm, owned by Dublin-based Trade Exchange Network Ltd., will not make payments to customers from their online accounts while the investigation is in progress, it said in a statement on its website. The service provider has closed and settled all open contracts at fair market value as at the end of March 10, it said.
“During the upcoming weeks, we will investigate these circumstances further and determine the necessary course of action,” Intrade said in the statement. The company’s auditors last month expressed concern over payments to the accounts of the firm’s late founder, John Delaney.
Intrade allowed customers to bet with one another on binary outcomes of future events such as the possibility of Cardinal Peter Turkson of Ghana becoming the next Pope. Just as stock exchanges find the price of shares, the so-called prediction market found the probability of an event happening, according to Intrade’s website. The marketplace accurately predicted the results of the U.S. presidential elections in 2008 and 2012 and was used by central banks and Wall Street firms, it said.
The company’s statement didn’t give details of any irregularities and said it took the actions in accordance with Irish law. Carl Wolfenden, Intrades’s operations manager, declined to comment when contacted by telephone today. A spokesman didn’t immediately respond to a request for comment.
The suspension follows the collapse of London-based spread-betting firm WorldSpreads Group Plc, which shut down last year after directors discovered a 13 million-pound ($19 million) shortfall in client funds. WorldSpreads allowed retail investors to speculate on stocks and commodities without owning the underlying asset and was typically tax-free because it was regulated as gambling rather than investing.
Intrade’s auditor, Dublin-based Caulfield Dunne Accountants & Registered Auditors, last month raised concerns about payments made to accounts controlled by Delaney, the company founder who died in May 2011. Delaney died at 42, less than 50 yards (46 meters) from the summit of Mount Everest, the New York Times reported at the time.
The firm had “insufficient documentation regarding payments made into bank accounts in the name of a deceased former director and other third parties,” the auditor said in the report, signed off on Feb. 4. “We have not obtained all the information and explanations we consider necessary for the purpose of our audit,” it said.
The current directors, who were appointed on Nov. 13, were not able to “comment on the maintenance of books and records by the company prior to their appointment,” the report said.
Brian Dunne, who signed the Caulfield Dunne audit, declined to comment. Intrade wasn’t regulated by the Irish Central Bank and as such the bank couldn’t comment on the situation, said spokesman Paul Gray.
In November, Intrade asked U.S. clients to close their accounts after the Commodity Futures Trading Commission sued the website for allegedly offering improper options trading. Trade Exchange in 2005 agreed to pay $150,000 to settle allegations it illegally offered contracts in the U.S., including some based on the price of gold, crude oil, the euro and the yen.
The market’s most active trades before bidding ceased were over the papal succession and whether the Democratic Party would win the 2016 U.S. presidential election.
There were 32,576 open positions at 8:07 p.m. Dublin time on March 10, according to statistics published on its site. Intrade held members’ funds of $5.7 million at Dec. 31, 2011, and had net assets of $1.9 million, according to accounts filed with Ireland’s corporate regulator.
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