Fantasy company Sleeper is not stopping with a request for an investigation into the behavior at the Commodity Futures Trading Commission (CFTC).
After alleging that the CFTC intentionally and illegally meddled with its pending Futures Commission Merchant (FCM) application with the National Futures Association (NFA) last week, Sleeper have taken things a step further and filed suit in DC District Court, alleging that the CFTC is violating the Fifth Amendment and the Administrative Procedures Act (APA).
Prior to filing the suit, Sleeper wrote to the Office of Inspectors General at both the CFTC and the Department of the Treasury asking for an investigation. Since sending that letter, PrizePicks has obtained the same FCM approval Sleeper is seeking, making it the first and, to date, only gaming company whose event contract venture has received NFA approval.
Suit claims CFTC is illegally stalling Sleeper’s NFA application
“This case is about the CFTC flagrantly ignoring applicable law, regulations, and decades of practice to block—without process or explanation —what should have been a routine application to serve as a broker in the derivatives markets. In doing so, it is cutting off access to, and limiting the growth of, those markets without cause, and at great harm to Sleeper, which is not only being deprived of its due process rights but also losing significant business opportunities because of the arbitrary and capricious nature of the CFTC’s actions,” the suit alleged.
Sleeper said the NFA informed the company that its futures venture was set to be approved no later than Sept. 4 before the CFTC intervened, going beyond the parameters of what the agency is allowed to do regarding FCMs.
Sleeper noted in its argument that, since 1984, the NFA has been the sole group overseeing the vetting and approval of FCM applications, unlike Designated Contract Markets (DCM), which are vetted by the CFTC.
However, Sleeper alleged that the CFTC stopped its approval with the NFA, in part, because of concerns about which DCMs and contracts the fantasy group might offer if approved.
Sleeper also argued that, procedurally, the CFTC cannot intervene and review an application until it has been officially approved by the NFA. Only then can the CFTC review, and in that instance, must affirm the application barring one of four reasons:
- The application was not evaluated fairly
- The application process broke NFA rules
- The evidence of the application contradicts the NFA’s conclusion
- The NFA’s conclusion is “not consistent with the purposes of the Commodity Exchange Act (CEA)”
However, if the application has yet to be approved, it is, as Sleeper argued, not available for the CFTC to even review. Accooringly, it is accusing the regulatory body of violating the due process close and the APA.
Timeline of events, per Sleeper’s lawsuit
Even though the CFTC, according to the filing, repeatedly told Sleeper it is not involved in the delay to its application, the suit laid out a timeline denoting a number of communications between the NFA, CFTC and Sleeper that suggest otherwise.
Aug. 28: The NFA informed Sleeper the review of its FCM application was complete and approval would come no later than Sept. 4.
Sept. 4: Sleeper confirmed with the NFA that the group needed nothing else and had no questions regarding the company’s application.
Sept 5.: Sleeper has a call with CFTC Acting Counsel Meghan Tente who voiced the opinion that the CFTC believed Sleeper’s application was incomplete. Sleeper counsel then sent a letter that day to CFTC Acting Chair Caroline Pham, expressing concern that the CFTC was compromising Sleeper’s due process. Tente, not Pham, replied to the letter and denied the accusation that the CFTC pressured the NFA to hold off approving Sleeper’s application. The groups agreed to a follow-up call on Sept. 8.
Sept. 8: Follow up call took place with no admission of guilt. Tente asked for an additional day to gather information and agreed to a 9:30 am call on Sept. 9.
Sept. 9: Three minutes before the scheduled call, Tente canceled, telling Sleeper she was sick in bed. She suggested rescheduling a call with either her or Pham, but never followed up to additional communications from Sleeper.
Sept. 10: Sleeper emailed NFA CEO and President Thomas W Sexton III for confirmation nothing was incompleted about the company’s application. Sexton asked for a day to do some fact finding and get back to them.
Sept. 12: After no response from Sexton, Sleeper emailed again asking for an update and filed its complaint with the two Offices of Investigators General.
Sept. 15: CFTC issued a statement to Law360 that the NFA is the sole assessor of FCM applications as a general rule.
Sept. 18: Sleeper spoke with Sexton and other NFA representatives and reiterated the idea that the NFA was ready to approve the application but the CFTC intervened and Sexton did not deny that perception of events.
Sept. 22: Sleeper once again writes to Pham and Tente asking for an explanation of what the CFTC is concerned about with its application.
Sept. 29: Sleeper filed a lawsuit against the CFTC after never receiving a response.
First lawsuit to bring the CFTC into the fold
While the list of lawsuits related to event contracts, prediction markets and other things regulated by the CFTC, the CFTC has been absent from the courtroom thus far. However, with this suit, the regulatory will now be under scrutiny in federal court with a judge trying to determine if the organization is purposefully picking winners and losers.
