Wronged by Irish futures exchange Intrade

[Slaughtermeyer]

I have grievances against the unregulated Irish futures exchange Intrade. I am a US citizen residing in the USA. Here is an email I sent them outlining my grievances:

Dear Mr. Wolfenden,

For your reference here is a summary of my grievances against Intrade and how those grievances came into being. It should not be construed as a complete enumeration of my grievances, I may wish to pursue legal remedies for other grievances which I do not mention in this message.

In 2006 I became convinced that betting on Hillary Clinton to win the Democratic party nomination was an extremely good bet and accumulated a substantial long position in that contract by the summer of 2007. I purchased most of these contracts in the mid-forties and by summer the contract was trading in the high sixties. Convinced that short selling the Barack contract was also a good bet, I also accumulated a substantial short position in that contract while it was trading in the thirties and twenties. This contract also eventually experienced a significant price move in my favor.

I also accumulated a substantial short position in the Al Gore presidential and nomination contracts, convinced that Gore had a near zero chance of getting the nomination. I also had a smaller short position in Edwards contracts.

In July 2007, less than one month prior to the first margin rate change, the exchange made known the schedule of margin rate changes. Bettors were notified that in the month of August in the year 2007 the amount of margin would triple to 1.50 per contract. At the same time, they were informed that margin would increase yet again to 2.50 per contract in September. In October the margin requirement would increase drastically to 100% of potential loss which depending on the market price of the contract could mean close to a total of 10.00 needed per contract. If a bettor could not come up with the additional margin, Intrade reserved the right to itself liquidate that bettor's holdings to the point where margin was sufficient.


After the margin rate changes were publicised, I realized that it would be prudent to start liquidating some of my positions in anticipation of the massive jump in margin requirements that would happen in October, because I was not sure that I would have access to sufficient funds available for the October margin increase if I kept all of my positions open. It's especially important to keep in mind that as my Barack position was gradually liquidated, I saw my margin requirements gradually decrease, so therefore I continued liquidating the contracts although I would have preferred to hold on to them in anticipation of Barack's loss.

I decided to retain as much of my short Al Gore position as I could which I considered to be virtually a sure thing. When the September margin increase became effective, my available balance turned negative. Because funds which I sent to Intrade did not arrive in time to completely eliminate the negative balance, my account had a negative balance for most of September. However, whenever I liquidated my short Obama contracts I saw my negative balance change toward the positive direction, so I continued to liquidate my position to the point where I had only a relatively small position in that contract at the beginning of October.

After the drastic October margin requirement increase, the negative available balance became much more substantial. I tried to continue to liquidate my remaining short Obama position but to my great astonishment I found that I was no longer able to buy Obama contracts, but was able at that point to actually short sell them! Prior to the October margin change it was exactly the opposite situation, I was able to only buy but not short sell them, even though I had a negative available balance both in Septimber and October.

I eventually came to the conclusion that I was able to short sell the Barack Obama contracts in October because by doing so I actually reduced the maximum loss and risk potential in my account because it would be impossible for both Barack and Gore to win the nomination, and that the short Barack and Gore positions mutually hedge the risk against each other. I concluded that I was able to buy Obama contracts in September but not short them because of a flaw in the margin software which did not take into account the risk reducing effect of having mutually supporting short positions. This conclusion was reinforced when I received an email from Intrade stating that the margin calculation program used by Intrade takes into account the risk reducing effect of mutually hedged short positions only when margin requirements are set at 100% worst case loss. Prior to the date of worst case loss margin requirement, the margin software did not take into account the risk reducing effect of having mutually hedged positions, but instead treated hedging as if it actually added to risk as reflected in the available balance! But Intrade denied that there is anything wrong, improper, or deceptive about having this kind of margin calculation!

I am very disappointed in the existence of this problem at Intrade. Had I known that I would actually increase the risk and margin requirements in October by liquidating my short position in Barack Obama, I would not have done so. I also believes that I should have been able to short additional contracts of Barack in order to hedge against my Gore position while the lesser margin requirements were in place, which would have happened at a price of around 30 and therefore would have resulted in a substantial profit for me when the price of Barack contracts tumbled. I also would have shorted additional Edwards contracts and not liquidated my existing position, which likewise would have reduced my risk and resulted in additional value to my account based on the price movement of that contract. If I had kept my short positions in Obama that I did liquidate at a relatively unfavorable price under the false impression that it was reducing my risk, my account would show substantially more of a net value at the present moment for that reason too.

My understanding is that Intrade's position is that it does not consider itself liable for any losses and potential lost profits that I experienced as a result of the way its margin software operates, and that if I not deposit additional margin to my account to eliminate the negative balance by the end of today, it retains the right to close my account and liquidate positions sufficient to eliminate the negative available balance. I have proposed that this matter be brought to an independent betting arbitration organization, but that proposal was rejected by Intrade.

Very truly yours,

XXXXXXX

[Slaughtermeyer]

Intrade has responded with a settlement offer which I may accept after minor to moderate modifications. However, I would be most interested in knowing the worth and viability of insisting on retaining my right to recover damages. I estimate those damages could be as high as the $50,000 to $100,000 area, but I also may suffer damages in that amount or greater if Intrade liqudates positions in my account at prices far from the current market prices if I do not accept their offer. Here is their settlement offer.

PRIVILEGED & CONFIDENTIAL COMMUNICATION‏
From: Carl Wolfenden (CarlW@intrade.com)
Sent: Thu 10/04/07 2:53 PM
To: xxxxxxx
Dear Mr. XXXXXX,


Further to our telephone conversation of October 4th 2007 on or about 16.30 Dublin time we would like to propose the following to you.



This letter is sent to you without prejudice to the rights of either party and without admission of liability, however, once it is accepted by you it will serve as a compromise of all claims and demands made or which may be made by you relative to your agreement(s) with Intrade and the termination of your agreement(s). Specifically, but not limited to you will agree that neither the Exchange, its officers or employees or our margining system is responsible in whole or part for causing you a loss and that neither the Exchange, its officers or employees or our margining system have been deceptive, misleading, illusory, or deceitful in any way and in any of our business practices or dealings with you.



By executing this Agreement you hereby irrevocably and unconditionally accept the terms and conditions herein provided for and acknowledge that the provisions made in this agreement are fair and in full and final settlement of each and every claim you may have against the Company in respect of your agreement and any future termination of your agreement with the Company whether such claims (if any) arise under contract, Common Law, statute, or otherwise howsoever arising.



Confidentiality: You agree and confirm that you shall not reveal or discuss the contents of this agreement or your account with the Exchange which shall include fables or stories thematically similar to your dealings with the exchange unless required by law.



Savings Clause: You agree that if any term of this agreement is declared void or unenforceable this shall not alter the enforceability or validity of the remaining paragraphs and/or the terms of this settlement and release, each of which shall remain fully binding on the parties.



Controlling Law: You agree that this agreement shall be governed by and construed in accordance with the laws of the Republic of Ireland.



Account Compliance: You confirm and agree that your account balance will be US$0.00 or greater and cannot be negative as of 10:00am Dublin time on Friday November 2nd, 2007.



If this is not the case you confirm and agree that you are aware and expect the Exchange will terminate all agreements with you including this one and commence liquidating your remaining positions at whatever prices are available at that time which may not be prices they you like.



Funds: You agree and confirm that you will make additional deposits to your Intrade account as follows…



Send by bank wire an additional $65,000 at least by close of business tomorrow and send us proof (copy of instruction and money leaving your account) on the same day by email this has been done
Send by bank wire and additional $50,000 at least by close of business on October 10th and proof (copy of instruction and money leaving your account) on the same day by email this has been done
Send by bank wire and additional $30,000 at least by close of business on October 30th and proof (copy of instruction and money leaving your account) on the same day by email this has been done


You confirm and agree that if you do not make the above deposits at a minimum the Exchange will terminate all agreements with you including this one and commence liquidating your remaining positions at whatever prices are available at that time which may not be prices they you like.



Reduction of Negative Funds by Closing out Positions: You agree and confirm that the negative balance in your account will reduce on a daily basis as you agree to voluntarily trade out of positions at available prices. You also agree and confirm that your negative balance will reduce by a sum equal to or greater then your negative balance divided by the number of days from the day you are trading until November 1st.



E.g. If there are 3 days left to get your account into compliance and your negative funds are $60 at the beginning of the day, then you must reduce your negative funds by $20 on that day. This reduction must begin immediately.



You confirm and agree that if you do not reduce the negative balance in accordance with the above description the Exchange will terminate all agreements with you including this one and commence liquidating your remaining positions at whatever prices are available at that time which may not be prices they you like.



If we do not receive confirmation from you that you agree with all of the above by 10:00am Dublin time tomorrow, Friday October 5th, 2007 the Exchange will:



a) Immediately terminate your agreement with the Exchange and close your account in accordance with Exchange Rule section 2.6;

b) Cancel some or all of your open orders and reduce your open positions by trading out at available prices.

c) In taking action under Section 10.2, the exchange does not have any obligation to minimize any losses you may incur or consult with you about the actions it is taking.



For the avoidance of doubt please provide your:



Name:

Address:

Phone Number:

Intrade User Name:

Intrade Forum Name:

Date of Birth:



And reply by email stating whether you agree to the above proposal or not. If we receive no communication from you by mail or by mail and fax by 10am Dublin on October 5th 2007 time we will assume you do not agree to this proposal.



If you do agree to the above proposal please print this document and fax back to + 353 1 6200 396.



You acknowledge that you have read and understand the foregoing agreement, accept and agree to its contents in full and that you sign it voluntarily and with full understanding that you are releasing any and all claims that you have or might have against the Intrade and the cessation of membership of the Intrade Exchange.





Signature: _______________

Name: XXXXXXX














www.intrade.com
The Prediction Market


ABOUT US: Intrade is The Prediction Market where members can buy and sell "shares" in financial, political, weather and other important subjects. You can trade using real US$ and you can learn to trade using virtual Intrade I$.


Intrade and the predictive information generated by our members have been featured on CNBC, CNN, Bloomberg, Fox, Fortune & others.


Becoming a member of Intrade gives you profit opportunity and access to the wisdom of a crowd of many thousands of people from over 120 countries.


Intrade News is available on RSS at http://www.intrade.com/news/newsRss.xml


CONFIDENTIALITY & DISCLAIMER: The information within this email is confidential and may be privileged. It is intended solely for party to which it is addressed.


Please notify us immediately if you received this mail in error by returning it to the sender and delete this copy from your system. You should also notify us at +353-1-6200 300.

[msg]

Confidentiality: You agree and confirm that you shall not reveal or discuss the contents of this agreement or your account with the Exchange which shall include fables or stories thematically similar to your dealings with the exchange unless required by law.

_____________
You have violated their offer by posting this it would seem.

But I would agree you do have rights here and their handling of the account was not correct. You did suffer damages.