Regulating Public Morals and Private Markets: Online Securities Trading, Internet Gambling and the Speculation Paradox
University of Illinois College of Law
Boston University Law Review, 2005
Marquette Law School Legal Studies Paper No. 06-07
Risk-taking is a distinctively American value. From the frontier spirit of the settler to the entrepreneurial sense of the founder of a start-up company, Americans have been taught to realize nothing ventured, nothing gained. This embracing of risk prompts individuals in the United States to participate in two closely intertwined activities: gambling and investing. To gamble is to put something of value at risk on an uncertain outcome, or, in other words, wagers are economic choices under uncertainty. Under this broad definition, investors gamble with every purchase of a financial instrument. Although many investors act as gamblers, both law and society view investing and gambling quite differently. Regulators characterize investing as an enterprise of skill in which those who are assiduous and diligent may earn deserved rewards. Conversely, gambling is an enterprise of chance that encourages the lazy and untalented to divert useful capital into a chaotic system whereby an undeserving few reap ill-gotten gains while the vast majority foolishly lose. In stock market investing, the financial intermediaries are viewed as earning modest fees for assisting others to invest wisely, but in gaming, the house, or the casinos, are detached hawkers who win every game. In comparing the regulatory environments of gambling and investing, responses to innovations that test the existing frameworks provide telling contrast. In particular, comparing the regulatory responses to both online investing and online gambling reveals interesting, and quite troubling, differences in the fundamental policies behind federal regulation of these two types of Internet speculation. As one might expect, the federal government has been quite receptive to online investing, but unpredictably inhospitable to online gambling. This fairly harsh approach to online gambling is a reversal of both the federal government's delegation of gambling regulation to the states, its receptivity to tribal gaming, and its acceptance of the recent liberalization of gambling laws in most U.S. states. Although morality myths prevail in anti-gambling rhetoric, the abundance of legalized gambling activity in almost all states weakens the authority of those myths as governmental policy. I propose that the U.S. government's efforts to prohibit Internet gambling be abandoned and an appropriate regulatory scheme be created, similar to the regulatory scheme for physical casinos, to insure the integrity of Internet gambling. The federal government's loose regulation of financial speculation should inform regulators' treatment of gambling speculation, specifically, the federal government's decision to treat online trading similarly to traditional trading provides a model for treating Internet gambling similarly to traditional gambling.
Number of Pages in PDF File: 62
Keywords: Securities, investing, gambling, day trading, online trading, internet gambling, online casino, speculation
JEL Classification: K22Accepted Paper Series
Date posted: September 8, 2005
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