Auditors have found that Intrades founder received $2.6 million in payments that were not sufficiently documented.
After online betting company Intrade closed without warning yesterday. The company’s web site put a notice on its front page citing “circumstances,” and making reference to “financial irregularities” that might be uncovered in a coming investigation. Today some of those irregularities were made public in a Financial Times report.
Intrade founder John Delaney received an estimated $2.6 million in payments that had “insufficient documentation” in 2010 and 2011 according to a audit carried out weeks before the closure of the site. The auditors were concerned with “significant financial irregularities” in the company’s accounts.
Intrade operated ostensibly as a prediction market, hoping to improve the accuracy of predictions by ensuring there was something to lose if a user was wrong. In practical use it was a betting site. It allowed users to bet on almost anything however, making it different from most online gambling arenas.
The most significant moment in Intrade’s history came last year, when US regulators made a complaint about the company that led to its closure in that market. The United States was by far the largest market the firm had. Loss of revenue from the United States hurt the company deeply.
Intrade was based in Dublin, Ireland. Its founder John Delaney died in 2011 at the age of 42. His death came in the pursuit of a lifelong ambition, to climb Mt. Everest. Mr. Delaney dies within 50 meters of the summit.
One of the most interesting, and perhaps worrying, aspects of this case is that two of the companies’ big investors were prominent hedge fund managers. Both Paul Tudor Jones and Stanley Druckenmiller had invested in the company. The Financial Times was unable to get in touch with representatives from either manager.
It is not known how involved either manager was in the Irish prediction market firm, but there must have been some due diligence before an investment was made. Either the hedge funds knew about the irregularities and did nothing about it, or they failed in their initial analysis. The head of the team of auditors who looked at Intrade’s books said the company did not keep proper books of account for the year ended December 2011.
Intrade no longer exists as a web service or a functioning company, and the accounts of its users have been frozen. It is unclear whether or not users will be able to recoup their money, or whether a case will be brought against the company.