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With the revelations from Nicky Hager’s Dirty Politics still fresh, rogue hacker Whaledump releasing new information constantly and the departure, albeit reluctant, of Minister of Justice Judith Collins, New Zealand politics has never been this gritty. Salient investigates how Victoria’s online prediction market, iPredict, has been linked to all this dirty politics.
Dirty Politics twice named iPredict as a way for Cameron Slater (Whale Oil) to promote local MP candidates who were paying him. In the first instance, Hager says that Slater and Simon Lusk, a National Party strategist, manipulated iPredict by purchasing stocks on one of the five candidates competing to be the National candidate in Rodney. Once he had driven up the iPredict stock prices for that candidate, Slater posted about the price changes on his blog without saying he had been the one creating those changes. Slater and Lusk did this, so Hager says, in the context of running a smear campaign on candidates other than Mark Mitchell, the candidate who was paying them. Mark Mitchell won, and is now the National MP for Rodney.
In the second instance, Hager says Slater and Jordan Williams, a lawyer and head of the Taxpayers’ Union, discussed manipulating iPredict stocks on who had leaked an email about ACC whistleblower Bronwyn Pullar. Williams said he had shorted Simon Lusk to bring down iPredict’s stake on Lusk being the leaker.
iPredict was also mentioned in the email released by John Key as the reason behind Judith Collins resigning. The email was sent by Slater to Carrick Graham and two other recipients, one of whom is possibly disgraced Hanover Finance’s former managing director Mark Hotchin. It ends with Slater saying: “I have also arranged with Matthew Hooton for iPredict… to have a new stock released so people can invest on [sic] the probability of Adam Feeley getting the sack before Christmas or leaving. These stocks…” This is as much of the email as Key’s office has released. The wider email discusses Collins’ involvement in an attack campaign against Adam Feeley, ex-CEO of the Serious Fraud Office. The SFO was, at the time, investigating Hotchin for the 2008 failure of Hanover Finance, which lost around $500 million.
This email was sent on 5 May 2011. The discussions between Slater and Lusk occurred on 1 March 2011. Williams and Slater Facebook-chatted on 28 March 2012. At the time that this was going on, Matthew Hooton’s PR firm Exceltium was in control of iPredict, though it was owned by the University. During 2012, Victoria University regained control of iPredict.
The organisation has made significant changes to the way it operates since the University took back over. When Exceltium was running the show, it placed large market makers – algorithms which generate a set of trades on behalf of iPredict – on many stocks. Robert Quigley-McBride, who has worked at iPredict since the University resumed control, says it was doing that to increase liquidity in the market and thus increase interest in iPredict: this has now changed, because iPredict was losing a lot of money through the market makers.
Hooton’s only current involvement is through Exceltium providing free PR to iPredict through a weekly snapshot of political trends. Quigley-McBride says it would be theoretically possible for someone to present a biased view by trading right before the snapshot is taken, but the snapshot is taken at a random time of the day so traders have less ability to influence it (though that time is chosen by Exceltium). He also says it would be obvious if someone was attempting to influence the snapshot – “all you would need to do is look at what he was reporting and see that it wasn’t the same as what was happening at the time.”
While allegations of insider trading are nothing new to iPredict – indeed, it is well known that the market is used by political insiders, and iPredict encourages this – the Hager revelations have raised new questions about how easy it is to manipulate the service. Share-trading forums and iPredict’s own forums have been abuzz, and iPredict has issued several statements in response. Matthew Hooton also fronted on Q+A in the wake of Collins’ resignation.
Quigley-McBride says that there has been confusion over insider trading, and what iPredict allows. “When we’re saying insider trading, we’re saying people with better information than is publicly available. They bring that to the market and they let everyone know that information by trading on iPredict. That’s insider trading in the sense that it improves our accuracy, and we like that. [The allegations in Dirty Politics] is attempted manipulation by insiders. People are calling it insider trading, and people have said iPredict allows insider trading, but they’re two different things.”
iPredict is aware that people have tried to manipulate stocks, but say this increases the accuracy of the service as it increases liquidity – or the amount of money – in the market. “The difference between a trader who wants to intentionally create a false prediction on that stock and a trader who’s just really partisan and really believes that stock is wrong when it’s correct is very small… Both of them just bring more money in for correct traders.”
On the subject of Slater’s stock-buying in favour of Mark Mitchell, Quigley-McBride says it’s hard to define as manipulation because the market agreed with Slater. “I went back and had a look… the person who did trade before his blog post was trading on the favourite candidate. It’s not even clear that that was successful manipulation.”
Further concerns were raised after Collins’ resignation by the email John Key released, where Slater said he had asked Hooton to run a stock on whether Feeley would be fired. Both Hooton and Quigley-McBride have said this is not unusual – iPredict often crowd-sources its contracts, because “there’s no point in making a contract no one’s going to trade. The only way to know traders will trade it is if traders come to you and say: ‘We like this stock, can we have it?’ The primary source for our stocks is our traders.”
The final decision, Quigley-McBride says, rests with iPredict. “We have to make a decision about whether or not it’s worth running. We’re going to have to put a market maker on it, which costs us money. To make it worthwhile, it needs to generate a useful prediction.”
Geoff Todd, Managing Director of Viclink, of which iPredict is a subsidiary, says the University is “confident that iPredict is run strictly within [Financial Markets Authority] regulations and is also confident that iPredict does not lend itself to manipulation.” iPredict says much of the criticism of the company is because people don’t understand what it does.