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 9/11 and Insider Trading

 

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 Judy Mathewson and Michael Nol, “U.S., Germany, Japan Investigate Unusual Trading Before Attack” Bloomberg Financial News, September 18, 2001

http://www.themodernreligion.com/terror/wtc-unusualtrading.html

Trading skyrocketed in options that bet on a drop in UAL Corp. and AMR Corp. stock in the days before terrorists crashed hijacked United and American airlines jets into the World Trade Center and the Pentagon. Morgan Stanley Dean Witter & Co., which occupied 22 floors of the 110-story 2 World Trade Center, and Merrill Lynch & Co., with headquarters near the destroyed twin towers, also experienced pre- attack trading of 12 times to more than 25 times the usual volume in so-called put options that profit when stock prices fall, according to Bloomberg data. Now, securities regulators in the U.S., Germany, Japan and Hong Kong say they are investigating whether terrorists raised money from insider trading on their knowledge of attacks that devastated New York's financial district and closed U.S. stock markets for four days.... Some airline, insurance, and brokerage stocks had jumps in the days before the Sept. 11 attack in so-called put options, which profit when a company's shares fall. One day before two American Airlines jets were hijacked and crashed, for example, 1,535 contracts changed hands on options that let investors profit if AMR stock falls below $30 per share before Oct. 20. That was almost five times the total number of those October $30 put options traded before Sept. 10, according to Bloomberg data. AMR shares fell $11.70 today to $18.

 

Those 1,535 contracts were worth $1.6 million at today's closing price compared with $337,700 at the end of trading on Sept. 10, according to Bloomberg data. A contract represents options for 100 shares. Similarly, October $30 put options for UAL soared, with 2,000 contracts traded on Sept. 6, three trading days before the attack. A total of 27 contracts had traded previously. UAL shares fell $13.32 today to $17.50. The 2,000 contracts were valued at $2.4 million today, compared with $180,000 on Sept. 6. ``We've heard those reports about terrorist involvement in our markets,'' U.S. Securities and Exchange Commission Chairman Harvey Pitt said in a statement. ``Our enforcement division has been looking into a variety of market actions that could be linked to these terrible acts including the subjects of the rumors.'' Trading records may help show whether Osama bin Laden or other terrorists were behind suspicious trading in airline, brokerage, and insurance stocks or options, and may help securities regulators trace a money trail to some of those responsible for the attacks at the World Trade Center.

 

``It's a matter of great interest to intelligence. To the extent we find this evidence, we shouldn't just focus on it as proof of insider trading but as evidence of a desire to commit murder and terrorism,'' said Columbia University law professor John Coffee. Deutsche Boerse AG spokesman Frank Hartmann said that exchange and German regulators also are examining trading in stocks, options, and futures before the Sept. 11 attack. On Sept. 6 and Sept. 7, trading almost doubled the average for the past six months in shares of Munich Re, the biggest reinsurer. Initial spot checks had found nothing irregular, Hartmann said. A spokeswoman for the Chicago Board Options Exchange declined comment. Japan's Securities and Exchange Surveillance Commission is probing TOPIX futures trading at the Tokyo Stock Exchange and Nikkei futures trade at the Osaka Stock Exchange, SESC officials said, confirming an earlier Jiji news service report. Hong Kong's stock exchange and the market regulator are also checking for unusual trading activities. Banking regulators told lenders to check suspicious accounts for any connections with alleged terrorist Osama bin Laden....

 

The prospect of insider trading based on knowledge of the attacks suggests a good deal of sophistication on the part of far- flung terrorist networks, which may have used U.S. markets to raise money for more assaults. ``It sure presents these people on a whole different level as sophisticated strategists rather than religious zealots,'' Coffee said. ``I suppose from their standpoint ... they're trying to pay for future terrorist activities by profiting from their past terrorist activities.'' At Morgan Stanley, trading in October $45 put options jumped to 2,157 contracts between Sept. 6 and Sept. 10, almost 27 times a previous daily average of 27 contracts. Options to sell Merrill Lynch shares for $45 apiece before Sept. 22 had 12,215 contracts traded from Sept. 5 to Sept. 10, 12 times the earlier daily average of 252. Morgan Stanley shares fell $6.40 today to $42.50. Merrill Lynch shares fell $5.37 to $41.48.

 

Other brokerage and insurance companies where options trading surged include:

-- Citigroup Inc., which has estimated that its Travelers insurance unit may pay $500 million in claims from the World Trade Center attack. It had a jump in trading of October options that profit if shares fall below $40 apiece. Almost 14,000 of those options contracts were traded from Sept. 6 to Sept. 10 -- about 45 times the previous daily average. Citigroup shares fell $2.85 today to $39.60. 

-- Bear Stearns & Cos., where investors traded 3,979 contracts from Sept. 6 to Sept. 10 on September options that profit if shares fall below $50. The previous average volume for those options was 22 contracts. Bear Stearns shares fell $3.79 today to $46.45.  

-- Marsh & McLennan Cos., the biggest insurance brokerage, which had 1,700 employees working in the World Trade Center. Traders on Sept. 10 exchanged 1,209 contracts on options that profit if company shares fall below $90 through the third week of September. Previously, 13 contracts had traded on an average day. Marsh & McLennan shares fell $2.50 today to $84.50.

 

“Bin Laden ‘share gains’ probe”, BBC News, September 18, 2001

http://news.bbc.co.uk/1/hi/business/1548118.stm

Investigations are under way in Europe, Japan and the US into unusual share price movements shortly before last week's terror attacks on America. The suggestion is that Islamist dissident Osama Bin Laden, or some of his supporters, may have tried to profit by engaging in "short selling" of stocks likely to be affected by the atrocities. Selling short allows investors to bet that a stock will decline in value. The sectors in the spotlight include reinsurance, airlines and armaments. Germany's securities watchdog BaWe said it had launched a probe into "suspect" share movements in the run up to the attacks....

 

So far, there is no clear evidence that share movements - which are constantly monitored in any case by financial watchdogs for signs of insider dealing - are linked to Bin Laden or his followers....

 

The investigation is expected to focus on Munich Re, the world's biggest reinsurance company, which has lost 22% of its value in the past two months, 13% of that in the week before the attacks on America....

 

Bin Laden is thought to have indulged in stock market speculation in the past. According to reports in Italian newspaper Corriere della Sera, he used a Milan brokerage to invest in European markets. The name of the broker has not been released, the newspaper added. It said that European authorities were investigating possible financial links to Bin Laden in Luxembourg, Switzerland, Monte Carlo and Cyprus, where Bin Laden's organisation is reported to have had a base, with a company, offices and staff. Italy's stock market authority, Consob, said it was investigating suspicious share movements on the day of the attack, as well as the previous day.

 

Financial experts have said it is possible that those behind the attack could have profited from the subsequent market fall-out. But they would have had to put very large and conspicuous short positions in the market to put underlying pressure on big stocks such as Munich Re. One expert, who did not want to be named, said it would probably have taken several years to put big short positions in place without detection. "It is possible - they are right to check it - but it is not that likely," he added.

 

A separate investigation into possible profiteering is under way in Japan. "The Securities and Exchange Surveillance Commission Friday started to investigate if Mr Osama Bin Laden, who is suspected of masterminding the terrorist attacks in the United States, has traded in securities markets in Japan," Japanese news wire Jiji Press reported. The commission's investigation is understood to be focusing on the trading of futures contracts. In the futures market, investors in essence use small bets to take on large equity positions, and can make huge profits if prices go in the desired direction. The news agency said Bin Laden had made large profits by trading futures contracts in European stock and foreign exchange markets....

 

Italy's defence minister Antonio Martino fuelled debate on Monday by saying that he thought terrorist organisations engaged in speculation on international financial markets. Speaking in an interview with Italian newspaper, Mr Martino said: "I think that there are terrorist states and organisations behind speculation on the international markets." Meanwhile, US authorities are reported to be investigating whether profits from European share trading by groups linked to Bin Laden could have been placed in US banks.

 

Judy Mathewson and Michael Nol, “Chicago options exchange probing pre-attack trading”, Bloomberg News, September 19, 2001

http://www.suntimes.com/terror/stories/cst-fin-opt19.html

The Chicago Board Options Exchange, the biggest U.S. options market, said Tuesday it is investigating trading before terrorist attacks that flattened New York's World Trade Center and damaged the Pentagon. The prospect that terrorists may have profited from advance knowledge about the assaults also is being investigated by securities regulators in the United States, Europe and Asia. Trading in some so-called put options, which rise in value when stock prices fall, surged as much as 285 times the previous average volume in UAL Corp. and AMR Corp., parent companies of United and American airlines, during the days before terrorists used hijacked United and American jets as weapons against the center's twin towers and the Pentagon. ''The CBOE is conducting an investigation of trading prior to the news event,'' said CBOE spokeswoman Lynne Howard. She declined to provide more detail or say what options are being examined.

 

Options volume also jumped at some insurers and at brokerages affected by the attacks. Morgan Stanley Dean Witter & Co., which occupied 22 floors of the 110-story 2 World Trade Center, experienced pre-attack trading of some put options that was more than 25 times the usual volume. ''We've heard those reports about terrorist involvement in our markets,'' Securities and Exchange Commission Chairman Harvey Pitt said in a statement. ''Our enforcement division has been looking into a variety of market actions that could be linked to these terrible acts including the subjects of the rumors....''

 

Former SEC enforcement chief William McLucas said regulators will ''certainly be able to track down every trade, where the trade cleared, where the trade was directed from.''

 

“Profiting From Disaster?”, CBS News, September 19, 2001

http://www.cbsnews.com/stories/2001/09/19/eveningnews/main311834.shtml

Sources tell CBS News that the afternoon before the attack, alarm bells were sounding over unusual trading in the U.S. stock options market. An extraordinary number of trades were betting that American Airlines stock price would fall. The trades are called "puts" and they involved at least 450,000 shares of American. But what raised the red flag is more than 80 percent of the orders were "puts", far outnumbering "call" options, those betting the stock would rise. Sources say they have never seen that kind of imbalance before, reports CBS News Correspondent Sharyl Attkisson. Normally the numbers are fairly even.

After the terrorist attacks, American Airline stock price did fall obviously by 39 percent, and according to sources, that translated into well over $5 million total profit for the person or persons who bet the  stock would fall. Sources tell 60 Minutes that the initial options were bought through at least two brokerage firms including NFS, a subsidiary of Fidelity Brokerage, and TD Waterhouse, a discount firm. TD Waterhouse says they handled approximately 3 percent of the initial orders for "puts" on American Airline stock. The company says it has looked at the orders and has determined no evidence of any suspicious activity. At least one Wall Street firm reported their suspicions about this activity to the SEC shortly after the attack. The same thing happened with United Airlines on the Chicago Board Options Exchange four days before the attack. An extremely unbalanced number of trades betting United's stock price would fall — also transformed into huge profits when it did after the hijackings. "We can directly work backwards from a trade on the floor of the Chicago Board Options Exchange. The trader is linked to a brokerage firm. The brokerage firm received the order to buy that 'put' option from either someone within a brokerage firm speculating, or from one of the customers," said Randall Dodd of the Economic Strategy Institute....

 

Christian Berthelsen, “New scrutiny of airlines options deals”, San Francisco Chronicle, September 19, 2001

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/09/19/BU184559.DTL

The Chicago Board Options Exchange said yesterday that it is looking into an unusual spike in trading in two airline stocks in advance of last week's terrorist attacks. As reported in The Chronicle, options trading in the stocks of the parent companies of American and United airlines was unusually heavy in the three trading days prior to the attack. That activity is the focus of an international investigation in the United States and several other countries that is trying to determine whether people with advance knowledge of the attacks sought to profit from the trading.

 

Four American and United planes, along with their crew and passengers, were hijacked on Sept. 11. Three were used in the terrorist attacks against the twin towers of the World Trade Center and against the Pentagon. The fourth crashed in rural Pennsylvania. Both airlines' stocks fell precipitously when trading resumed on Monday, with shares of UAL, the parent of United, dropping 43 percent, and shares of AMR, the parent of American, dropping 39 percent. Both recovered slightly yesterday, with UAL rising $1.49 to close at $18.99, and AMR rising $2, to close at $20. The Chicago Exchange, the largest options market in the nation and the board on which United options are officially listed, experienced volume eight times its normal levels in the trading of UAL Corp. put options on the Friday before the attack.

 

The purchaser of a put contract is guaranteed the right to sell a specific amount of shares at a specified price by a certain date. The purchaser profits from the deal when the share price drops lower than the agreed sale price. Lynn Howard, the exchange's chief spokeswoman, said, "As is usual, CBOE is conducting an investigation of trading prior to the news event." Howard declined to elaborate on the specific nature of the inquiry. Sources who have agreed to speak on condition of anonymity say government investigators are also looking at the trades. Exchange officials and market markers in San Francisco refused to discuss the inquiry.

 

On the day before the terrorist attack there was a spike of 25 times the normal levels in the trading ratio of UAL put options, with larger-than- average volume coming through the Pacific Exchange. Dale Carlson, a vice president of the Pacific Exchange, refused to comment on whether an inquiry is taking place there in the trading of put options on UAL or any other security. A floor broker with TFM Investment Group, the market maker in UAL options at the Pacific Exchange, also refused to comment.

 

Don Radlauer, “Black Tuesday: The World’s Largest Insider Trading Scam?”, The International Policy Institute for Counter-Terrorism (ICT), September 19, 2001

http://www.ict.org.il/articles/articledet.cfm?articleid=386

In the wake of the terrorist attacks which caused the destruction of the Twin Towers of New York's World Trade Center, damaged the Pentagon, and destroyed four large airliners with all aboard, securities-exchange investigators on three continents are poring over trading records to determine whether one or more parties profited by their advance knowledge of the disaster. Investigations are focusing on the many different ways and places in which profits could be made following the Black Tuesday outrage.  A brief introduction to "left-handed trading" will help to clarify what may have happened.
 

Most investors buy stocks much the way they buy houses:  They try to buy cheap and sell dear.  Some traders, however, try to accomplish the same thing in reverse order -- when they think a stock will decrease in value, they sell the stock first, in the belief that they will be able to buy it back at a lower price later.  This is known as short-selling.  In order to sell a stock short, a trader must work with a stockbroker who will lend him/her the stock to sell; this is a normal service provided by stockbrokers.  At least in theory, an investor can wait a long time before buying back the stock that s/he has sold ("covering the short"). Short-selling can be a highly successful trading strategy for an investor who knows how to time the market and can recognize overpriced stocks before the general public does.  On the other hand, it can be highly risky:  Since there is no upper limit to how high the stock being shorted can rise in price, the potential loss to the short-seller is infinite.  On the other hand, the investor who shorts a stock with advance knowledge of news that will cause its price to drop precipitously can make a killing.
 

"Derivatives" are investments that do not involve buying and selling something that has direct value -- such as shares of stock or boxcars of wheat -- but instead involve buying or selling standardized contracts that give their owner the right (or obligation) to buy or sell a stock or a commodity at a particular time and price.  For example, a commodity futures trader may spend all his working life buying and selling contracts to purchase boxcar-loads of pork bellies, but unless he badly botches his trades, he will never actually have to take delivery and see or touch a pork belly. Derivatives relating to stock markets include stock options and stock-index futures contracts.  Stock options are contracts that give their owner the right (but not the obligation) to buy ("call" options) or sell ("put" options) stocks at a set price (the "strike" price).  American stock options can be exercised at any time until their expiration date; European stock options can be exercised only on one particular day.  To prevent total anarchy in the options markets, options are written with standardized expiration dates and standard prices -- for U.S. markets, the last exercize date is the third Friday of each month, and the prices are in intervals such as $40.00 (per share), $42.50, $45.00, and so on.  Each option contract gives the right to buy or sell 100 shares of the underlying stock. Stock options are traded on several different exchanges, including the Chicago Board Options Exchange, the American Stock Exchange, and a number of others.  A stock option can be either "in the money", "at the money", or "out of the money".  An "in the money" option is one that has an immediate value -- such as a call option that allows its owner to buy a stock at $50.00 per share when the stock is currently worth $60.00 per share.  (In this example, one option contract would be worth $10.00 per share for 100 shares, for a total value of $1,000.00.)  Similarly, a put option is "in the money" when the stock is currently worth less than the option's strike price. "At the money" options are options whose strike price equals the current price of the underlying stock; "out of the money" options are options that have no "real" value because they give their owner the right either to buy the stock at more than its current market price, or sell it at less than the market price -- in other words, they will have no value at all unless the stock price changes (in the right direction) before the options expire.

 

This brings us to one last point about options:  Even "out of the money" options have some value, since there is a chance that they may become valuable at some point before they expire.  This value is greater or less depending on three factors:  First, the longer the option has to run, the more chance there is for the underlying stock's price to change so that the option will become worth exercizing; so longer-term options are more expensive than options that will expire very soon.  Second, options that are only slightly "out of the money" are more likely to become worth exercizing than options whose strike price is far above (for calls) or below (for puts) the current market price of the stock.  Third, options on stocks whose prices are normally volatile (such as technology stocks) have more chance of becoming valuable than "out of the money" options on stocks whose price doesn't generally change rapidly (such as utility companies).  The value of an option contract (beyond any "in the money" value it may have) is known as the option's premium.  As the option's expiration date approaches, its premium declines -- until, on the last day before it expires, the option's only value is the extent to which it is "in the money."  Most stock options that are purchased never actually become "in the money," and so expire without being exercized. Stock-index futures contracts are different from stock options in two important ways:  First, they are based on the combined price of a basket of stocks, such as the Dow Jones Industrials or the Standard & Poors 500; so their value reflects broader economic and market trends rather than the specific success or failure of a single company.  Second, index futures are more like commodity futures than like stock options, in that they represent an obligation to buy rather than the right conveyed by a stock option.  An investor who believes that the stock market as a whole -- or one particular segment of it for which there is an index-futures contract available -- is about to decline, can attempt to profit by short-selling in the index-futures market. Those who have found all the material above too simple will be comforted by the fact that nowadays there are also index options - that is, option contracts that give the purchaser the right to buy or sell a basket of stocks rather than single stocks.
 

An event as dramatic and large in scale as the Black Tuesday attacks has a severe and far-reaching effect on worldwide stock markets. This effect is somewhat like the impact of a stone thrown into a pond:  There are certain specific companies which are strongly and immediately affected by the attacks; others which are affected more weakly and indirectly; some which decrease in value only because of a general feeling of pessimism rather than because of any direct impact on their bottom line; and some which may even increase in value because they are seen as a "safe haven" in uncertain times, or because they may gain business from an upcoming armed conflict. Another way of looking at this "ripple" effect is that the farther away a company is from the center of the impact (conceptually speaking), the greater the odds that it would emerge unscathed had the attacks' impact been less horrendous than it was. The obvious members of the "first circle" of companies strongly affected by the attacks are American Airlines and United Airlines, the two companies whose planes were hijacked and used as flying bombs in the attacks on New York and Washington.  These companies' stocks would have decreased in value as a result of any hijacking incident involving their planes, even one with a peaceful resolution.  The same is true -- to a lesser extent -- of other airline companies, Boeing (the principal private manufacturer of airliners), and other companies that provide equipment and services to the air-transportation industry. The next circle includes companies that would weather a "normal" hijacking incident relatively unscathed, but would be significantly affected by a more violent attack.  These include the insurance and reinsurance companies which must cover the damage, as well as firms with a major presence in or near the Twin Towers. The general stock market -- the "third circle" in our analogy -- would not be strongly affected by a "peaceful" hijacking, but would be by a more violent one.  It could be argued that even the Black Tuesday attacks as they occurred were not sufficient to cause a really bad "market break" -- while the decline of the Dow Jones Industrial Average on the first day of trading after the disaster was the largest on record in absolute terms, it was not one of the top ten historical declines in relative terms.  Had the attacks been more completely successful -- for example, had the fourth plane proceeded to Washington and crashed into the White House or the Capitol -- the overall market would surely have suffered a much worse crash.  To understand what might have happened, it is worth comparing the market's performance immediately post-Black Tuesday, when the Dow Jones Industrials dropped by about seven percentage points, and the 1987 market crash, when the Dow dropped by over 22 percent in one day even though there was no obvious external reason for it to so.
 

Certain types of transaction can alert securities regulators that the investor who initiated them must have been acting based upon inside knowledge -- in other words, knowing some significant piece of news before the general public.  A transaction will be considered suspicious based upon a combination of criteria:  

  • The timing is just a little too good.  Anyone can make an investment at any time, but someone who buys soon-to-be profitable put options or sells a stock short in the few trading days immediately before a major decline in the stock's price will seem to have been more than ordinarily lucky.  This criterion is suggestive when present, but is not mandatory.  For example, a short sale could have been made quite some time before it would turn out to be profitable.  But the longer in advance a short sale or put-option purchase is made, the more uncertainty there will be as to whether events will play out according to plan; so generally the inside trader doesn't make illicit trades very long in advance. 

  • The transaction itself is too specific.  For example, if someone bought puts on United Airlines and American Airlines but not on Delta Airlines, investigators will be pretty sure that the trader knew in advance that these two airlines were targets of the attack.  (On the other hand, this works both ways:  If there were similar trades in a third airline but not in others, investigators can conclude that one or more flights of that airline were supposed to have been hijacked as well.)

  •  The transaction is too large.  One of the most reliable indicators of illegal insider trading is that the perpetrator has traded at an abnormally high level.  In other words, someone who normally makes trades of a few thousand dollars now and then, but suddenly begins to make much bigger plays, may well be doing so because s/he has some form of inside knowledge.  If inside-traders kept their trades to reasonable levels, they would seldom, if ever, be caught -- since their trades wouldn't seem especially abnormal and they could be explained as part of their regular investment strategy.  However, people typically get caught up by their own greed:  when they know for certain that something significant is going to happen to the price of a stock, they can't resist the temptation to make as much money as possible on their knowledge.

  • Transactions deviate from normal trading levels.  In the options markets, there is normally a reasonably even balance between call and put options on any given stock; and there is normally a reasonably predictable level of activity in options on any particular stock.  When the balance between puts and calls is grossly disrupted and the level of volume in options trading is far beyond normal, investigators can be pretty sure that something is up.

  • The transaction is too speculative.  In other words, the transaction is one that would be unreasonably risky -- if not out-and-out stupid -- were it not that the perpetrator was trading based upon inside knowledge.  For example, a large purchase of stock options that were both significantly "out of the money" and relatively close to their expiration date, but suddenly turned out to be valuable based upon some news affecting the underlying stock, would seem to represent an unreasonable degree of prescience.

Investigators will be looking at transactions starting with those that can be most easily identified as suspicious.  Already enough has emerged to indicate that some trades were almost certainly made based upon advance knowledge of the Black Tuesday attacks:  

  • Between September 6 and 7, the Chicago Board Options Exchange saw purchases of 4,744 put options on United Airlines, but only 396 call options.  Although there was no news at that time to justify so much "left-handed" trading, United Airlines stock fell 42 percent, from $30.82 per share to $17.50, when the market reopened after the attacks.  Assuming that 4,000 of the options were bought by people with advance knowledge of the imminent attacks, these "insiders" would have profited by almost $5 million.  

  • On September 10, 4,516 put options on American Airlines were bought on the Chicago exchange, compared to only 748 calls.  Again, there was no news at that point to justify this imbalance; but American Airlines stock fell 39 percent, from $29.70 to $18.00 per share, when the market reopened.  Again, assuming that 4,000 of these options trades represent "insiders," they would represent a gain of about $4 million.  

  • No similar trading in other airlines occurred on the Chicago exchange in the days immediately preceding Black Tuesday.  

  • Morgan Stanley Dean Witter & Co., which occupied 22 floors of the World Trade Center, saw 2,157 of its October $45.00 put options bought in the three trading days before Black Tuesday; this compares to an average of 27 contracts per day before September 6.  Morgan Stanley's share price fell from $48.90 to $42.50 in the aftermath of the attacks.  Assuming that 2,000 of these options contracts were bought based upon knowledge of the approaching attacks, their purchasers could have profited by at least $1.2 million.  

  • Merrill Lynch & Co., with headquarters near the Twin Towers, saw 12,215 October $45.00 put options bought in the four trading days before the attacks; the previous average volume in these options had been 252 contracts per day.  When trading resumed, Merrill's shares fell from $46.88 to $41.50; assuming that 11,000 option contracts were bought by "insiders," their profit would have been about $5.5 million.  

  • European regulators are examing trades in Germany's Munich Re, Switzerland's Swiss Re, and AXA of France, all major reinsurers with exposure to the Black Tuesday disaster.  (Swiss Re estimates that its exposure will be $730 million; Munich Re expects to pay out as much as $903 million.)  It is not clear if any trades in these stocks ring alarm bells; and some negative earnings news announced shortly before the attacks means that a certain amount of unusual selling may have been a normal market reaction and not anything more sinister.  

  • Amsterdam traders have noted that there was unusual trading activity in KLM Royal Dutch Airlines put options before the attacks.

This is very much a developing story, and we can be sure that more -- and more accurate -- numbers will emerge soon.  Investigators will be examining transactions starting with the few days immediately before the attack, and then working backwards; and similarly, they will be looking first at trades in the most obviously affected securities.
 

Assuming that investigators are convinced that trades were made based upon advance knowledge of the attacks, they will obviously try to trace these trades back to determine who initiated them.  Obviously, anyone who had detailed knowledge of the attacks before they happened was, at the very least, an accessory to their planning; and the overwhelming probability is that the trades could have been made only by the same people who masterminded the attacks themselves. The difficulty, of course, will be in tracing the transactions to their real source.  The trading is sure to have been done under false names, behind shell corporations, and in general to have been thoroughly obfuscated.  If in fact the Black Tuesday attacks -- and the associated securities transactions -- were made under orders from Osama bin Laden, then we are dealing with an expert in masking ownership of corporations and making covert deals.  This doesn't mean that unraveling the threads of these transactions will be impossible, but it probably won't be quick or easy.

 

“International Probe of Unusual Trading Before Attacks”, The International Policy Institute for Counter-Terrorism (ICT), September 19, 2001

http://www.ict.org.il/spotlight/det.cfm?id=675

In the wake of the terrorist attacks which caused the destruction of the Twin Towers of New York's World Trade Center, damaged the Pentagon, and destroyed four large airliners with all aboard, securities-exchange investigators on three continents are poring over trading records to determine whether one or more parties profited by their advance knowledge of the disaster. Investigations are focusing on the many different ways and places in which profits could be made following the Black Tuesday outrage.

 

The Chicago Board Options Exchange (CBOE), the world's largest options market, said Tuesday it is investigating reports of unusual trading activity prior to the attacks in New York and Washington. The investigation, in itself, is not unusual, said a spokeswoman for the exchange. CBOE routinely investigates reports of suspicious trading linked to possible advance knowledge of takeovers or mergers. The Chicago exchange trades options on the stocks of about 1,400 companies along with 38 stock-based indexes, including the Dow Jones Industrial Average, the Standard & Poors 500, and the NASDAQ 100. All of these stock indices plummeted in the aftermath of the attacks, along with a number of individual stocks such as American Airlines, United Airlines, and Boeing. This would have meant substantial profits for anyone who had bet on their decline by buying put options or through short-selling. Short-selling involves selling borrowed shares of a stock the seller does not yet own, in the expectation he will be able to buy the stock later at a cheaper price than he sold it at. Put options are contracts that give the holder the right to sell an asset at a specified price before a certain date.

 

The Associated Press, quoting a government source, said the Securities and Exchange Commission (SEC) had received information from other U.S. regulators about possible suspicious trading earlier this month in put options. AP reported that in the days before the attacks, unusually high numbers of put options were purchased for the stocks of AMR Corp. and UAL Corp., the parent companies of American Airlines and United Airlines, each of which had two of its planes hijacked. Significantly, there was no such trend reported involving other major airlines. According to a report in The Wall Street Journal, the SEC said it had received information from various U.S. agencies Friday about possible trading by terrorists in industries affected by the bombing, including insurance and the airlines. There were similar reports of suspicious trading in put options. The San Fransisco Chronicle quoted John Kinnucan, a principal of Broadband Research, an independent telecommunications research firm, as saying that the put options numbers were definitely unusual. "I saw put-call numbers higher than I've ever seen in 10 years of following the markets, particularly the options markets," he said. "When one sees this type of activity, the first thing one does is ask oneself, 'What is the explanation? What are people worried about?'"

 

On Monday, Germany's stock market regulator said it was looking into claims of suspicious short-selling just before the September 11 attacks. On Monday, a global conference call was organised by the Madrid-based International Organisation of Securities Commissions (IOSCO) with the help of London's Financial Services Authority. German watchdog BAWe said regulators from 10 to 12 nations, including the United States, participated in the teleconference, and discussed the possibility that insiders had placed large bets in the days before the attacks. Meanwhile, European and U.S. investigators are reportedly checking stock movements of three large European reinsurance companies -- Germany's Munich Re, Switzerland's Swiss Re and AXA of France. Reinsurance companies provide coverage for losses by insurers. Industry experts have said losses due to the attacks could reach U.S. $20 billion. France's AXA reportedly asked France's stock market regulator to look into whether its shares were the object of short-selling on behalf of bin Laden. The Swiss stock exchange said it was conducting a routine investigation of its share movements. Ettore Candolfi, a member of the exchange's board, said it would be conducting a price pattern analysis on Swiss Re, a routine occurrence when there was an unusual movement in the price -- such as the 17 per cent drop after the September 11 attacks. According to WiredNews, the FBI has asked all U.S. banks and foreign banks with operations in the U.S. to check their records for any accounts held or transactions by the 19 suspected hijackers and report them to federal banking regulators.

 

“Germans Probe Pre-Terrorism Trading”, Bloomberg News, September 23, 2001

http://www.newsday.com/ny-bzbund232380730sep23,0,2864727.story

German probes into trading before last week's terrorist attacks are focusing on stock- index, oil and gold futures, airline and insurers' shares and options, Bundesbank president Ernst Welteke said yesterday. German central bank research shows "that activities on international financial markets must have been planned and executed with the necessary knowledge," Welteke told reporters at a meeting of European finance officials. "There were share price movements at a whole series of companies, especially at airlines. Now it depends on the extent to which such suspicions can be verified, on how far one can trace who has made such transactions." The U.S. Securities and Exchange Commission also is investigating larger-than-normal trading of options in AMR Corp. and UAL Corp., the parent companies of American and United airlines, whose planes were hijacked and used in the attacks. Trading in so-called put options, which rise in value when stock prices fall, surged as much as 285 times the previous average volume in AMR and UAL during the days before Sept. 11.  Welteke declined to identify the companies whose trading is being investigated by German authorities. However, trading in Munich Re, the world's biggest reinsurer, was about double the normal volume on both Sept. 6 and 7, Bloomberg data shows. Oil prices rose almost 6 percent in the two weeks before the attacks, and Welteke said the increase "cannot be explained by fundamental [supply and demand] data." He said German securities regulators and the Federal Crime Office are examining the "atypical trading" in cooperation with the U.S. Federal Bureau of Investigation.

 

William Drozdiak, “’Insider trading’ by terrorists is suspected in Europe”, Miami Herald, September 24, 2001

http://web.archive.org/web/20011109160700/www.miami.com/herald/special/news/worldtrade/digdocs/099922.htm

The president of Germany's central bank said Saturday there was mounting evidence that people connected to the attacks in New York and Washington sought to profit from the tragedy by engaging in ``terrorism insider trading'' on European stock and commodity markets. Bundesbank chief Ernst Welteke said a preliminary review by German regulators and bank researchers showed there were highly suspicious sales of shares in airlines and insurance companies, along with major trades in gold and oil markets, before Sept. 11 that suggest they were conducted with advance knowledge of the attacks. Welteke said his researchers came across what he considers almost irrefutable proof of insider trading as recently as Thursday, but he refused to release any detailed information pending further consultation with regulators in Europe and the United States. ``What we found makes us sure that people connected to the terrorists must have been trying to profit from this tragedy,'' he told European finance ministers and central bankers. Besides massive short-selling of airline and insurance stocks, Welteke said ``there was a fundamentally inexplicable rise'' in world oil prices just before the attacks that suggest certain groups or people were buying oil contracts that were then sold for a much higher price. He said German researchers also detected movements in gold markets ``which need explaining.'' ``If you look at the movements in markets before and after the attacks, it really makes your brow furrow,'' Welteke said. ``It is extremely difficult to really verify it, but we are confident we will be able to pinpoint the source in at least one or two cases.''

 

The comments by the central bank chief of Europe's biggest economy were the first public confirmation that regulators were close to proving that groups linked to the U.S. attacks sought to reap windfall gains by exploiting their advance knowledge through trades in international markets. Welteke's announcement stunned the finance ministers and central bankers, who met in the eastern Belgian city of Liege this weekend to discuss plans to introduce the first notes and coins of the euro, Europe's single currency, at the end of the year. Their agenda was dominated instead by economic fallout from the attacks. They agreed on an emergency plan to help European airlines pay for insurance, averting a possible shutdown by European airlines on Monday. While ruling our direct government aid, banned under EU rules, finance ministers agreed to allow governments to act as guarantors for the airlines for at least a month, Bloomberg News reported. Financial authorities in Europe said their scrutiny of stock sales is part of a broader inquiry into the global dealings of Osama bin Laden, who is widely suspected as the mastermind of the terror bombings.

 

Kurt Eichenwald and Edmund L. Andrews, “Regulators Find No Evidence That Advance Knowledge of Attacks Was Used for Profit”, The New York Times, September 28, 2001

http://www.cooperativeresearch.org/archive/2001/nytimes092801.htm

After almost two weeks of investigation, financial regulators around the world have found no hard evidence that people with advance knowledge of the terrorist attacks in New York and Washington used that information to profit in the international securities markets. And a number of officials are beginning to express doubt that such a plan existed. While the investigations are continuing and additional evidence is still to be reviewed, many leads that initially seemed to indicate a conspiracy to profit from the terrorist attacks have been found to have less sinister explanations. For example, regulators have already traced some of the most suspicious trades in London -- involving what appeared to be huge bets that the stocks of certain large airlines would decline -- to the trading accounts of a smaller airline. That airline, which officials declined to identify, was said to have made the trades as part of a common hedging strategy intended to reduce the financial impact of a downturn in the industry. ''We have been through thousands and thousands of trades, and followed up on anything that seemed unusual,'' said Patrick Humphris , a spokesman for the Financial Service Authority in Britain, which is investigating trades on the London Stock Exchange, the London Futures Exchange and the Petroleum Exchange, as well as direct trades between institutions. ''So far, we have found nothing irregular.'' A law enforcement official, speaking on condition of anonymity, also expressed doubt that a trading conspiracy existed. The official said it was unlikely that a terrorist group that had worked for months, if not years, to orchestrate its attack would be reckless enough to create even a subtle signal of its plans by engaging in the high-profile trading of public securities. Regulatory authorities are also working with the Federal Bureau of Investigation and other law enforcement and intelligence agencies in an attempt to track down financial and brokerage accounts tied to the suspected hijackers of the planes that crashed into the World Trade Center, the Pentagon and in Pennsylvania, as well as to their associates.

 

Someone who knew that the attacks were coming could have profited in a number of ways. One would be to sell stocks short -- borrowing the shares and then selling them, hoping they could be bought back after a price drop. Another would be to buy put options, which give the owner the right to sell at a certain price for a limited time. The examination of possible illegal trading began in Germany, where financial regulators noticed suspicious trades in the stocks of reinsurance companies, which ultimately will pay billions of dollars in the wake of the attack. German authorities shared that information with officials in other European countries and in America. Those officials in turn began their own investigations. Public concerns about possible illegal trading were heightened last weekend when Ernest Welteke, president of the German Bundesbank, said that his staff's research supported suspicions that some people might have profited by advance knowledge of the terrorist attacks. ''There have been fundamental movements in these markets, and the oil price rise just ahead of the attacks is otherwise inexplicable,'' Mr. Welteke said at the time. But by Monday, the Bundesbank had retreated a bit, saying in a faxed statement that Mr. Welteke's remarks were ''based on information already revealed to the public by the authorities who are primarily in charge.'' Even so, Germany's securities regulator says the investigation is still being pursued at ''full steam.'' Since then, more doubts have grown about possible trading in the reinsurance stocks. The most suspicious trading involved Munich Re-insurance, whose stock dropped precipitously the week before the terrorist attack. In addition, there was a big surge in put options on Munich Re shares. But Rainer Kuppers, a spokesman for Munich Re, noted that shares of the company had been in a decline from the beginning of September. And in the week before the attack, he said, two investment houses downgraded the stock because of concerns about the deterioration in the capital markets. ''So far, there is still no indication that there were insiders at work,'' Christian Pawlick, a spokesman for the German securities regulator, Bundesaufsicht fuer Wertpapierhandel, told Deutsche Presse Agentur yesterday.

 

Benign explanations are turning up in the examination being conducted in the United States by the Securities and Exchange Commission. For example, a number of reports have noted there was significant trading in the days before the attack in the parent companies of American Airlines and United Airlines, in which investors were positioning themselves for a fall in the companies' stock prices. This has been repeatedly cited as the strongest evidence of possible insider trading in this country, since only American and United planes were hijacked. But concerns about the airline industry had been growing for some time, and had grown worse in the days before the attack. On Wednesday, Sept. 5, a report by Reuters -- which is widely read by market professionals -- said that industry experts were predicting ''a further deterioration'' in the airline industry's financial performance. Market pessimism increased two days later when the AMR Corporation, the parent of American and Trans World Airlines, announced that its losses for the second half of the year would be greater than forecast. In response, brokerage firms cut their ratings for AMR and other airlines. Hotel analysts, realizing that fewer travelers meant fewer overnight stays, followed suit. The short positions and volume of put options rose sharply across the travel industry -- which has been cited repeatedly in news reports as possible evidence of illegal trading. American and United were hit particularly hard. ''The two airline companies that are the most closely related are American and United,'' said Paul Foster, a market strategist with BeyondTheBull.com, a market information firm. ''I don't believe this has anything to do with the terrorists.''

 

“Suspicious profits sit uncollected: Airline investors seem to be lying low”, San Francisco Chronicle, September 29, 2001

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/09/29/MN186128.DTL

Investors have yet to collect more than $2.5 million in profits they made trading options in the stock of United Airlines before the Sept. 11 terrorist attacks, according to a source familiar with the trades and market data. The uncollected money raises suspicions that the investors -- whose identities and nationalities have not been made public -- had advance knowledge of the strikes. "Usually, if someone has a windfall like that, you take the money and run," said the source, who spoke on condition of anonymity. "Whoever did this thought the exchange would not be closed for four days. This smells real bad." The source and others in the financial industry speculate that the purchaser or purchasers -- having initially assumed the money could be picked up without detection -- now fear exposure, or that the account has been frozen. The markets were closed for four days after the attack, giving investigators time to notice the anomalous trades.

 

Securities regulators and law-enforcement agents throughout the United States and Europe are investigating unusual patterns in short sales and the purchase of "put" options, both of which are financial-market bets that the price of a given stock will fall. Authorities here and abroad have not publicly disclosed any conclusions they have reached and refuse to discuss the case. There was an unusually large jump in purchases of put options on the stocks of UAL Corp. and AMR Corp. in the three business days before the attack on major options exchanges in the United States. On one day, UAL put option purchases were 25 times greater than the year-to-date average. In the month before the attacks, short sales jumped by 40 percent for UAL and 20 percent for American. A put option gives the buyer a right to sell the underlying security at a certain price on a certain date; the purchaser profits when the share price drops lower than the agreed sale price. In a short sale, an investor borrows stock from a broker and sells it, hoping to buy it back at a lower price.

 

October series options for UAL Corp. were purchased in highly unusual volumes three trading days before the terrorist attacks for a total outlay of $2,070; investors bought the option contracts, each representing 100 shares, for 90 cents each. Those options are now selling at more than $12 each. There are still 2,313 so-called "put" options outstanding, according to the Options Clearinghouse Corp. Other financial professionals have told The Chronicle that an estimated $5 million to $10 million in all could have been made on the trades, including trading on other days and purchases of options on the parent company of American, AMR Corp. Four United and American aircraft crashed in the attacks.

 

Meanwhile, in Herzliya, Israel, a group headed by former Israeli intelligence officials -- the Interdisciplinary Center, a counter-terrorism think tank -- has issued a report on Osama bin Laden's finances ("Black Tuesday: The World's Largest Insider Trading Scam?") saying insiders profited by nearly $16 million. The money was made on Sept. 6, 7 and 10 in transactions involving United, American, Morgan Stanley Dean Witter & Co. and Merrill Lynch & Co., the center said. Morgan Stanley occupied 22 floors of the World Trade Center; Merrill Lynch's headquarters offices were nearby. The figure excluded other unusual trades involving insurance companies with significant exposure to damage claims resulting from the attacks. These include Munich Re of Germany, which expects to pay out more than $1.5 billion, and the AXA Group, a French firm, which could be on the hook for $550 million. A spokesman for the Securities and Exchange Commission declined to comment on a New York Times report yesterday that the SEC had found "benign" explanations for the trading activity. But the spokesman, John Heine, said the commission stands by a statement made eight days after the attack by Stephen M. Cutler, acting SEC enforcement director. The statement -- reiterated in substance Wednesday by SEC Chairman Harvey Pitt -- said the commission was "pursuing all credible leads."

 

Spokesmen for British securities regulators and the AXA Group also confirmed yesterday that investigations are continuing. The source familiar with the United trades identified Deutsche Banc Alex. Brown, the American investment banking arm of German giant Deutsche Bank, as the investment bank used to purchase at least some of the options. Rohini Pragasam, a bank spokeswoman, declined comment. Investigators' attentions previously had been drawn to Germany because of the residence there earlier in the year of some of the principal suspects in the Sept. 11 attacks and unusual patterns in the short-selling of insurance, airline and other financial company stocks there prior to the attacks. Last weekend, German central bank president Ernst Welteke said a study pointed to "terrorism insider trading" in those stocks. There are many reasons the bets against United and American could have been innocent, in view of the tough time the airline industry has had this year and heavy losses experienced by both airlines in particular. But the trades were not replicated in the stocks or options of any of the airlines' competitors.

 

While the identities of possible beneficiaries of advance knowledge of the attacks were not known publicly, experts were quick to point to possible candidates -- all presumed to be affluent residents of Arab nations. The former chairman of the State Department's National Commission on Terrorism, L. Paul Bremer, said he obtained classified government analyses early last year of bin Laden's finances confirming the assistance of affluent Middle Easterners.

 

E-mail the writers at cberthelsen@sfchronicle.com andswinokur@sfchronicle.com.

 

“Stock-trading probe expands to Canada”, San Francisco Chronicle, October 3, 2001

http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2001/10/03/BU187948.DTL

Canadian securities officials said yesterday that the U.S. Securities and Exchange Commission has asked North American investment firms to review their records for evidence of unusual trading activity in securities affected by the Sept. 11 terrorist attacks. The Investment Dealers Association of Canada told its 190 members that the SEC has identified 38 companies -- including the parent firms of United and American airlines, which lost four aircraft -- whose shares were traded at abnormally high levels in the weeks prior to the attacks, suggesting that buyers and sellers had advance knowledge of planned terrorist acts. Canadian securities officials in Vancouver, British Columbia, late yesterday said they could not immediately comment on the communication from the SEC. But earlier in the day, a top official of the dealers' group, speaking in Toronto, confirmed that the SEC had asked Canadian firms to look not only at the 38 companies but any others that showed signs of unusual trading activity. According to the Associated Press, the 38 companies include General Motors, Raytheon, Continental, Delta, Northwest, Southwest, USAirways, Boeing and defense contractor Lockheed Martin. The SEC has declined to comment on news stories -- including five in The Chronicle -- of pre-Sept. 11 trading that suggest possible advance information about the attacks.

 

In a closely related development, the Wall Street Journal reported yesterday that trading in equities was not the only type of deal under investigation. The government also reportedly is looking into an unusual surge prior to the attacks in the purchase of five-year U.S. Treasury notes, a traditional safe-haven investment in crisis times. The Journal said agents of the U.S. Secret Service -- which regulates currency in addition to protecting the president -- have contacted a number of bond traders regarding the unusually large purchases, including one $5 billion transaction. Among the firms contacted were Dreyfus Corp., a mutual fund unit of Mellon Financial specializing in bonds, and Goldman Sachs Group Inc.

 

The SEC equities list named several big companies that were tenants in the collapsed buildings in the heart of New York's financial district: investment firms Morgan Stanley, the towers' biggest occupant; Lehman Bros.; Bank of America; and financial firm Marsh & McLennan. While the SEC has been silent about specific investigative issues, Chairman Harvey Pitt told Congress last week that the agency's "No. 1 priority" is to pursue its worldwide investigation of possible trading by people associated with the terrorists. If such trading did occur, "We will do everything within our power to track those people down and bring them to justice," Pitt said in testimony to the House Financial Services Committee....

 

Marcy Gordon, “Pre-attack trading probed”, Associated Press, October 3, 2001

http://www.detnews.com/2001/business/0110/03/b03-308879.htm

The government is investigating trading in shares of 38 companies, including major airlines, cruise lines, General Motors Corp. and Raytheon, to determine if people used advance knowledge of the terror attacks to profit. The Securities and Exchange Commission asked brokerage and investment firms in the United States and Canada to review their records for trading in the stocks to find any unusual patterns from Aug. 27 through Sept. 11, the day hijackers slammed planes into the World Trade Center's towers and the Pentagon. There was unusually heavy trading in airline and related stocks several days before the attacks, using a market tactic that essentially bets that a stock will decline in value.

 

The SEC list also includes several big companies that were tenants in the collapsed Twin Towers in the heart of New York's financial district: investment firms Morgan Stanley, the complex's biggest occupant, and Lehman Brothers; Bank of America; and the financial firm Marsh & McLennan. The SEC has not disclosed details of its investigation, part of a worldwide inquiry into possible advance trading by individuals linked to the terrorists. But the agency's list of 38 companies was posted Monday on the Web site of the Investment Dealers Association of Canada, which represents that country's securities firms. The association sent a notice of the list to its approximately 190 member firms. "These are the ... securities the United States Securities and Exchange Commission is investigating in the United States. We ask that you review same with a view of determining any unusual trading patterns," the Web site posting said.

 

Alex Popovic, vice-president of enforcement for the dealers' group, said Tuesday that the SEC had asked brokerage firms to concentrate on stocks on the list, but not to limit their review. "One shouldn't be wearing blinders when looking at that sort of thing," he said by telephone from Toronto. SEC spokesman John Heine had no immediate comment Tuesday. SEC Chairman Harvey Pitt told Congress last week that the agency's top priority is to pursue its investigation of possible trading by people associated with the terrorists. If such trading is found to have occurred, "We will do everything within our power to track those people down and bring them to justice," Pitt said in testimony to the House Financial Services Committee.

 

The 38 companies also include the parents of major airlines American, Continental, Delta, Northwest, Southwest, United and US Airways as well as cruise lines Carnival and Royal Caribbean, aircraft maker Boeing and defense contractor Lockheed Martin. In the days before the terrorist assaults, unusually high numbers of put options were purchased for the stocks of AMR Corp. and UAL Corp., the parents of American and United -- each of which had two planes hijacked. A put option is a contract that gives a holder the right to sell an asset at a specified price before a certain date. Several insurance companies are on the list -- American International Group, Axa, Chubb, Cigna, CNA Financial, John Hancock and MetLife.

 

Barry Grey, “Suspicious trading points to advance knowledge by big investors of September 11 attacks”, World Socialist Web Site, October 5, 2001

http://www.wsws.org/articles/2001/oct2001/bond-o05.shtml

In the two weeks preceding the September 11 terror attacks on New York and Washington, there was a sudden and unaccountable rush of speculative trades on the US stock and bond markets that indicate some wealthy and well-connected investors had advance knowledge of the impending catastrophe. Those involved bet large sums on the prospect of a major crisis that would drive down the value of stocks in the airline, tourism and insurance industries, and undermine confidence in the US economy as a whole. Investigations are currently under way by the Securities and Exchange Commission (SEC), the federal watchdog agency for the stock and bond markets, the Secret Service and the FBI. These probes have been given little prominence by the media, in stark contrast to the round-the-clock warnings of new terrorist plots and reports of suspects detained in the US and Europe. The SEC has issued terse acknowledgements that it is looking into suspicious financial transactions to see if they are connected to terrorist organizations. But the scale of the stock and bond activity under scrutiny belies the notion that it could be the work of Osama bin Laden’s guerrilla band, let alone the fanatics who carried out the September 11 atrocities.

 

Over the past several days the Wall Street Journal has carried reports of the SEC and Secret Service probes, and dispatches have been published by the Associated Press and USA Today. But the New York Times and the Washington Post have remained strangely silent, and the network news outlets have said nothing. The Wall Street Journal reported on October 2 that the ongoing investigation by the SEC into suspicious stock trades had been joined by a Secret Service probe into an unusually high volume of five-year US Treasury note purchases prior to the attacks. The Treasury note transactions included a single $5 billion trade. As the Journal explained: “Five-year Treasury notes are among the best investments in the event of a world crisis, especially one that hits the US. The notes are prized for their safety and their backing by the US government, and usually rally when investors flee riskier investments, such as stocks.” The value of these notes, the Journal pointed out, has risen sharply since the events of September 11. The article went on to quote Michael Shamosh, a bond-market strategist for Tucker Anthony Inc., who said, “If they were going to do something like this they would do it in the five-year part of the market. It’s extremely liquid, and the tracks would be hard to spot.”

 

The SEC is investigating a surge in short-selling activity in a variety of stocks in the days preceding the attacks. It has asked US securities firms to produce customer accounts and stock-trading records involving short selling prior to September 11. Short sellers borrow shares and then sell them at the current price. They wager that at the future date by which they must pay for the borrowed shares, the price will have fallen, enabling them to pocket the difference.

 

In the week prior to September 11, shares in airlines, insurance firms, tourism-related businesses and financial companies with offices in the World Trade Center suffered disproportionate drops in their prices, arousing the suspicion of the SEC following the hijack-bombings. After the attacks, these stocks were hit particularly hard by the sell-off on Wall Street. The SEC has been extremely tight-lipped about its probe, in which it has enlisted securities firms and government agencies in Europe, Canada and other countries. But on Tuesday the Investment Dealers Association, a trade association for the Canadian securities industry, posted on its web site a list sent by the American SEC of 38 stocks. The US agency had asked the Canadians to look into trading in these stocks between August 27 and September 11.

 

As soon as US officials became aware of the Internet posting, they demanded that the Investment Dealers Association yank it from the web site, and the Canadian organization complied. However, reporters and others were able to copy the list before it was pulled. The list includes the parent companies of American, Continental, Delta, Northwest, Southwest, United and US Airways, as well as Carnival and Royal Caribbean cruise lines, aircraft maker Boeing and defense contractor Lockheed Martin. Several insurance companies are on the list—American International Group, Axa, Chubb, Cigna, CNA Financial, John Hancock and MetLife. The SEC list also includes several big companies that were tenants in the collapsed Twin Towers of the World Trade Center: investment firms Morgan Stanley, the complex’s largest occupant; Lehman Brothers; Bank of America; and the financial firm Marsh & McLennan. Other major companies listed include General Motors, Raytheon, LTV, WR Grace, Lone Star Technologies, American Express, Bank of New York, Bank One, Citigroup and Bear Stearns.

 

Testifying on Wednesday before the House Committee on Financial Services, Dennis Lormel, chief of the FBI Financial Crimes Section, said, “To date, there are no flags or indicators ... that people took advantage of this.” However USA Today quoted co-founder of PTI Securities Jon Najarian, described as an “active player” on the Chicago Board Options Exchange, who said, “The volumes were exceptional versus the norm.” It is impossible at this point to say which individuals, groups or corporate entities had advance knowledge of the September 11 attacks and used this knowledge to cash in, or whether any of them were based inside the US. But the otherwise inexplicable rush of Treasury note buys and short-selling in specific stocks is a further indication that those involved in the planning of the attacks included highly sophisticated and well-endowed people with a deep understanding of many facets of American society.

 

Chris Blackhurst, “Mystery of terror ‘insider dealers’”, The Independent, October 14, 2001

http://www.independent.co.uk/story.jsp?story=99402

http://www.prisonplanet.com/mystery_of_terror_insider_dealers.htm

Share speculators have failed to collect $2.5m (£1.7m) in profits made from the fall in the share price of United Airlines after the 11 September World Trade Centre attacks. The fact that the money is unclaimed more than a month later has re-awakened investigators' interest in a story dismissed as coincidence. It may be that investors who were able to predict the share price crash so skilfully are reluctant to be seen profiting from tragedy. But investigators now wonder whether there is a more sinister explanation. The authorities are examining the possibility that if they knew what was coming, traders were intent on taking their profits immediately, before regulators had woken up to any possible scam. But investors failed to foresee that the first response of the US stock markets to the disaster was to suspend all trading for four days, thereby denying them the chance of cashing in their profits. Further details of the futures trades that netted such huge gains in the wake of the hijackings have been disclosed.

 

To the embarrassment of investigators, it has also emerged that the firm used to buy many of the "put" options – where a trader, in effect, bets on a share price fall – on United Airlines stock was headed until 1998 by "Buzzy" Krongard, now executive director of the CIA. Until 1997, Mr Krongard was chairman of Alex Brown Inc, America's oldest investment banking firm. Alex Brown was acquired by Bankers Trust, which in turn was bought by Deutsche Bank. His last post before resigning to take his senior role in the CIA was to head Bankers Trust – Alex Brown's private client business, dealing with the accounts and investments of wealthy customers around the world. There is no suggestion that Mr Krongard had advance knowledge of the attacks.

 

Between 6 and 7 September, the Chicago Board Options Exchange saw purchases of 4,744 "put" option contracts in UAL versus 396 call options – where a speculator bets on a price rising. Holders of the put options would have netted a profit of $5m (£3.3m) once the carrier's share price dived after 11 September. On 10 September, more trading in Chicago saw the purchase of 4,516 put options in American Airlines, the other airline involved in the hijackings. This compares with a mere 748 call options in American purchased that day. Investigators cannot help but notice that no other airlines saw such trading in their put options.

 

It was not just airlines that were targeted by remarkably canny investors. One of the biggest occupants of the World Trade Centre was Morgan Stanley, the investment bank. In the first week of September, an average of 27 put option contracts was bought each day in its shares. The total for the three days before the attacks was 2,157. Merrill Lynch, another WTC tenant, saw 12,215 put options bought in the four days before the attacks, when the previous days had seen averages of 252 contracts a day.

 

Martketplace (Public Radio), October 17, 2001

http://marketplace.publicradio.org/shows/2001/10/17_mpp.html

More today on speculation over the last five weeks that agents of Osama Bin Laden and his terrorist network might have used prior knowledge of the September 11th attacks to make money on financial markets. In our continuing look at the terrorists' money trail, Marketplace's Steven Beard says European financial investigators have reached some conclusions.

 

Beard: "The Financial Services Authority - Britain's main financial regulator - has cleared bin Laden and his henchmen of insider trading. There has been a widespread suspicion that members of the Al Quaeda organisation had cashed in on the US attacks, dumping airline, aerospace and insurance company shares before September 11th. The Authority says that after a thorough investigation it has found no hard evidence of any such deals in London. An enquiry covering the other major financial centres in Europe has come to the same conclusion. Meanwhile, a picture is emerging of bin Laden as a kind of venture capitalist for terrorism. In an article for the Spanish newspaper El Mundo, a former British intelligence agent - Gordon Thomas - claims bin Laden has financially supported the Real IRA among other terrorist groups. Thomas says that Al Quaeda's top European paymaster - Mohammed Aich - has four homes and six bank accounts in Dublin."

 

Thomas: "He's used all of these to funnel money around the world to finance terrorism for bin Laden. And in all he appears to have financed no fewer than 22 separate terrorist organisations. In Ireland he had contacts with the real IRA - as opposed to the old IRA - it's an extreme terrorist group."

 

Beard: "The Real IRA has been blamed for the worst single atrocity in Northern Ireland - the Omagh bombing - in which twenty-nine people died. Mohammed Aich left Dublin shortly before September 11th this year. He is now believed to be in Afghanistan. In London, this is Stephen Beard for marketplace."

 

“Lawyer: Accused Man Knew of Attacks”, Associated Press, May 24, 2002

http://propagandamatrix.com/Lawyer_Accused_Man_Knew_of_Attacks.htm

An Egyptian-born financial analyst charged in a nationwide stock swindle may have known about the Sept. 11 terrorist attacks and tried to profit from them, a federal prosecutor said Friday. But a judge disregarded the suggestion and the analyst's lawyer said it was ``smacking of racial profiling.''

 

Amr I. ``Tony'' Elgindy telephoned his broker on Sept. 10 and asked him to liquidate his children's $300,000 trust account, Assistant U.S. Attorney Ken Breen told a federal judge at Elgindy's detention hearing. ``He made a comment predicting the market would drop to 3,000'' at a time when the Dow Jones stock index was at 9,600, Breen said. ``Perhaps Mr. Elgindy had pre-knowledge of the Sept. 11 attacks. Instead of trying to report it, he tried to profit from it.''

 

Elgindy, 34, of Encinitas, was ordered held without bond on charges of racketeering, extortion and obstruction of justice. Before issuing the order, Magistrate Judge John Houston said he was going to ``disregard'' the suggestion that Elgindy had anything to do with the terror attacks. Elgindy did not speak during the hourlong hearing. His attorney, Jeanne Knight, said Elgindy did call his broker to make a trade, but the timing was coincidental and the market had been dropping for months. The broker was unable to liquidate the trust account until Sept. 18, she added. ``It seems like the government, for lack of factual evidence, has decided to smear my client with terrorist innuendoes,'' Knight said. ``This is smacking of racial profiling.''

 

Breen made his accusations as prosecutors tried to convince Houston that Elgindy was a flight risk and should be denied bail. Elgindy, one of five defendants in the case, was arrested May 22 on an indictment issued by a grand jury in New York. In exchange for money, two FBI agents used confidential databases to provide Elgindy and other co-conspirators with information on publicly traded companies, the indictment said. Elgindy allegedly spread negative information about the companies on his Web site and to subscribers of his e-mail newsletter, InsideTruth.com, while betting that the companies' stock would go down. In one case, a former FBI agent searched the agency's confidential National Crime Information Center database and discovered the criminal history of a top executive for a company called Nuclear Solutions, the indictment said. The same day, Elgindy began sending e-mail calling the executive ``a convicted felon,'' then sold the company's stock short, the papers said.

 

Earlier this week, FBI agents raided Elgindy's $2.2 million mansion. Inside, agents said, they found tens of thousands of dollars in cash and gold coins. The government is seeking to seize Elgindy's fleet of cars, including a Rolls-Royce, a Jaguar and a Humvee. The charges carry a maximum penalty of 65 years in prison.

 

David K. Li and Kati Cornell, “Shady Trader Eyed For 9/11 Tip”, New York Post, May 25, 2002

http://propagandamatrix.com/shady_trader_eyed_for_911_tip.htm

An accused inside-trader made suspicious stock trades on Sept. 10, leading investigators to believe he might have known about the terror attacks a day later, a federal prosecutor said yesterday. Notorious short trader Amr Ibrahim Elgindy - also known as "Tony" and "Anthony Pacific" - allegedly ordered his kids' $300,000 trust fund liquidated the day before terrorists slammed planes into the World Trade Center and Pentagon. "He made a comment predicting the market would drop to 3,000," Assistant U.S. Attorney Ken Breen told a judge in San Diego. "Perhaps Mr. Elgindy had pre-knowledge of the Sept. 11 attacks. Instead of trying to report it, he tried to profit from it."

 

Federal authorities busted Elgindy for allegedly leading a ring of inside-traders - including two FBI agents - who used confidential information to short-trade stocks. Short sellers borrow what they believed to be overvalued stocks, sell them and then buy them back at lower prices, thus pocketing the difference. A lawyer for the Egyptian-born financial analyst, a well-known Internet stock commentator, ripped prosecutors for "racially profiling" her client. She said Elgindy had legitimate reason to believe the stock market would fall, and that the Sept. 10 timing was coincidental. The Dow Jones was above 10,000 but falling fast a week before terrorists flew hijacked airliners into the World Trade Center and the Pentagon. "It seems like the government, for lack of factual evidence, has decided to smear my client with terrorist innuendoes," defense lawyer Jeanne Knight said.

 

U.S. Magistrate John Houston said he didn't consider the prosecution's Sept. 11 allegations when he ordered Elgindy held without bail. Federal prosecutors in Brooklyn want Elgindy and four other suspected co-conspirators, who were busted on Wednesday, brought back to New York to stand trial. Two FBI agents used confidential databases to give Elgindy inside information about publicly traded companies, an indictment says. Elgindy would borrow those stocks and trash those companies on his Web site, driving prices down, prosecutors said.

 

Anthony M. DeStefano, “Feds: Ex-Agent Had Key Data”, Newsday, May 29, 2002

http://propagandamatrix.com/Ex_Agent_Had_Key_Data.htm

In a criminal case with a specter of the Sept. 11 terrorist attacks, prosecutors disclosed yesterday that classified information had been found during a search of possessions of a former FBI agent allegedly part of an insider tra