Legal Commentary

Intrade Market Manipulation?

By Professor University of Miami School of Law

CQ Politics | Trader Drove Up Price of McCain “Stock” in Online Market

An internal investigation by the popular online market Intrade has revealed that an investor has been attempting to artificially boost the prediction that Sen. John McCain will become president.

Over the past several weeks, the investor has pushed hundreds of thousands of dollars into one of Intrade’s predictive markets for the presidential election, the company said, resulting in great financial losses through a strategy that belies any financial motive.

Intrade is somewhat thinly traded in dollar terms, making this sort of manipulation possible. Even so, apparently it was expensive — tens, maybe hundreds, of thousands of dollars in opportunity costs (relative to buying similar contracts on other exchanges, or even on Intrade), not to mention losses. But many news organizations look to the headline candidate matchup as a meaningful statistic, making this particular contract the one you would wish to manipulate if you were trying to send false signals to observers.

Full post as published by Discourse.net on October 17, 2008 (boomark / email).