Pentagon Drops Bid For Futures Market; Investors Could Bet on Terrorism, Coups Bradley Graham and Vernon Loeb 30 July 2003 The Washington Post A17 The Pentagon yesterday scrapped a plan to establish a futures market that would have allowed investors to bet on the probability of coups, assassinations, terrorist strikes and other events in the Middle East. Confronted by a congressional outcry and widespread expressions of disbelief after news of the program suddenly emerged Monday, senior Pentagon officials appeared at a loss to explain how it got as far as it did. Deputy Secretary of Defense Paul D. Wolfowitz told a Senate hearing that he learned about the program from a newspaper report he read en route to the hearing, which dealt with postwar reconstruction in Iraq. "I share your shock at this kind of program," he said. "We'll find out about it, but it is being terminated." At the Pentagon, Tony Tether, director of the agency responsible for overseeing the program -- the Defense Advanced Research Projects Agency (DARPA) -- issued a statement saying "it simply did not make sense to continue" the effort "in light of the recent concerns surrounding" it. Sen. John W. Warner (R-Va.), chairman of the Senate Armed Services Committee, said earlier in the day that he had phoned Tether to impress on him the need to stop the program immediately. Warner said Tether's agency had neglected to "think through the full ramifications of the program." The initiative had been viewed by its Pentagon sponsors as a way of using the predictive ability of markets to anticipate terrorist events or other crises. It was based on the notion that futures trading has proven effective in predicting other events such as oil prices, elections and movie ticket sales. Under the plan, traders could have bought and sold futures contracts on the likelihood of, say, Palestinian leader Yasser Arafat being assassinated or Jordanian King Abdullah being overthrown. Those who predict correctly would profit over those who guess wrong. The Pentagon had listed the program in defense budget plans sent to Capitol Hill and had briefed congressional staff members about it earlier this year. A Web site had promoted the program, and the registration of as many as 1,000 traders had been due to begin on Friday, with trading set to start Oct. 1. But the initiative had gone largely unreported by news organizations until two Democratic senators -- Ron Wyden of Oregon and Byron L. Dorgan of North Dakota -- called a news conference on Monday to denounce it as twisted and morally offensive. At first, DARPA officials tried to defend the program as a way of gaining intelligence and preventing terrorist attacks. But by yesterday, the program had become the subject of revulsion and mockery among Democratic and Republican lawmakers alike. On the Senate floor, Democratic leader Thomas A. Daschle (S.D.) denounced it as a "plan to trade in death" and said the Bush administration should "issue a public apology, especially to the families of the victims of September 11." Similar expressions of outrage were leveled at Wolfowitz during his appearance before the Senate Foreign Relations Committee. While promising to look into the matter, Wolfowitz sought to add a word in defense of DARPA, saying the agency "is brilliantly imaginative in places where we want them to be imaginative." He then added: "It sounds like maybe they got too imaginative in this area." This drew a sharp retort from Sen. Barbara Boxer (D-Calif.). "I don't think we can laugh off that DARPA program," she said. "There is something very sick about it. And if it's going to end, I think you would end the careers of whoever it was who thought that up." She noted that terrorists could have participated in the betting as well -- and "knowing they were planning an attack, could have bet on the attack and collected a lot of money." Called the Policy Analysis Market, the project arose under a DARPA division called FutureMAP, or "Futures Markets Applied to Prediction." Two companies were involved -- Net Exchange, a market technologies company, and the Economist Intelligence Unit, a division of the publisher of the Economist magazine. The Pentagon had planned to spend $8 million on the effort through 2005. The program was supervised by retired Adm. John M. Poindexter, who served as national security adviser to President Ronald Reagan and was convicted for his role in the 1980s Iran-contra scandal. His conviction was later set aside. Poindexter was involved in another controversy last year, over a computerized surveillance project, initially known as the Total Information Awareness program, meant to collect information about potential terrorist threats by culling private databases. After lawmakers and others voiced concerns about possible invasions of privacy, Congress and the Pentagon imposed constraints on the project, and its name was changed to the Terrorism Information Awareness program. In remarks to reporters yesterday, Wyden and Dorgan welcomed the end of the futures trading project but called for further scrutiny of Poindexter's activities. "I want to emphasize that much more needs to be done to rein in the runaway horse that is this terrorism information program," Wyden said. Dorgan said he and Wyden had asked the Pentagon for a "full report" on "every single program" being run by Poindexter's office. Asked yesterday at a Pentagon news conference about Poindexter's employment status, Larry DiRita, the chief Defense Department spokesman, said: "At the moment, Admiral Poindexter continues to serve in DARPA." In confirming the termination of the futures trading project, DARPA officials made clear yesterday that they have not given up trying to find ways of better predicting where and how terrorists may strike next. "DARPA believes it is important to continue funding research that examines how to better use advanced information technologies and processes as predictive tools for terrorist acts," an agency statement said.