From the archives,
Sept. 18 and 23, 2001:
U.S., Germany, Japan investigate
unusual trading before attack
Questions following Sept. 11, 2001
One day before two American Airlines jets were hijacked and crashed, 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 [Sept. 23, 2001] closing price compared with $337,700 at the end of trading on Sept. 10 [2001], 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. ...
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Investigation shows no evidence of Sept. 11 profiteering
by David Roeder, Chicago Sun-Times
Sept. 19, 2003
Somewhere out there are hedge funds or individual investors who profited from the Sept. 11, 2001 terrorist attacks. But they had no foreknowledge of the catastrophes, an FBI spokesman said Thursday.
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Nothing to see here.
Move along, move along.
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Spokesman Ed Cogswell said the FBI has closed its investigation of stock and option trading that took place days before the attacks. He said the investigation turned up "absolutely no evidence'' of anyone with inside knowledge of what would happen.
After the attacks, in which terrorists commandeered planes owned by the two biggest airlines, United and American, traders in the Chicago options market noticed suspicious pre-Sept. 11 spikes in volume. Put options for stocks in the airlines' parent companies, UAL Corp. and AMR Corp., registered huge trading increases in the week before the attacks.
Investors can use puts, which confer the right to sell a stock at a pre-determined price, to make money when the underlying share price falls, similar to shorting a stock. The terrorist attacks and their effect on the travel industry caused shares of UAL and AMR to fall dramatically when the markets reopened Sept. 17.
Cogswell said most of the options trading was carried out by hedge funds with bearish outlooks. He did not name any of the funds, which pursue risky investment strategies on behalf of wealthy clients.
Market regulators in other countries opened similar investigations after the attacks, but Cogswell said he believes all have been concluded with no evidence that allies of Osama bin Laden were involved.
He said the FBI interviewed trading professionals and other witnesses, sharing its findings with the Justice Department and Securities and Exchange Commission.
On Sept. 10, 2001, put options on AMR were 17 times their average volume of 269 contracts. On Sept. 6, 2001, UAL put options were traded at more than four times their average volume of 711 contracts.
At the same time, some experts cautioned that because of the light volume in most option contracts, an increase can seem eye-popping.
London regulators thought they had something in the short-selling of big airline stocks before Sept. 11, but traced the activity to one of their small competitors.
Published by
Chicago Sun-Times
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U.S., Germany, Japan investigate unusual trading before attack
Bloomberg Financial News
Sept. 23, 2001
Washington — 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.
"They not only set out to destroy capitalism, but also to beat us at our own game," said Duke University law professor James Cox. "These are people who hate capitalism and see that you can turn capitalism against itself."
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.
"There is no evidence of the reported involvement of Hong Kong in any money-harboring activity related to Osama bin Laden," said Jasmin Fung, spokeswoman for the Hong Kong Monetary Authority. "However, banks in Hong Kong need to be aware of the issue."
'Sophisticated Strategists'
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.
Published by
Bloomberg Financial News
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Germans probe pre-terrorism trading
Bloomberg Financial News
Sept. 23, 2001
Liege, Belgium — 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.
Published by
Bloomberg Financial News
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