- Washington's Blog -
On September 19, 2001, CBS reported:
Sources tell CBS News that the afternoon before the attack, alarm bells were sounding over unusual trading in the U.S. stock options market.On September 29, 2001, the San Francisco Chronicle pointed out:
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.
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.
U.S. investigators want to know whether Osama bin Laden was the ultimate "inside trader" — profiting from a tragedy he's suspected of masterminding to finance his operation. Authorities are also investigating possibly suspicious trading in Germany, Switzerland, Italy and Japan.
The Chronicle illustrated the story with the following chart:
"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."***
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. ***
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.***
Last weekend, German central bank president Ernst Welteke said a study pointed to "terrorism insider trading" in those stocks.
On October 19, 2001, the Chronicle wrote:
On Oct. 2, Canadian securities officials confirmed that the SEC privately had asked North American investment firms to review their records for evidence of trading activity in the shares of 38 companies, suggesting that some buyers and sellers might have had advance knowledge of the attacks.
***So the effort to track down the source of the puts was certainly quite substantial.
FMR Corp. spokeswoman Anne Crowley, said her firm -- which owns the giant Fidelity family of mutual funds in Boston -- has already provided "account and transaction" information to investigators, and had no objection to the new procedures announced yesterday. Crowley declined to describe the nature of the information previously shared with the government.
What were the results and details of the investigation?
Apparently, we'll never know.
Specifically, David Callahan - executive editor of SmartCEO - submitted a Freedom of Information Act request to the SEC regarding the pre-9/11 put options.
The SEC responded:
This letter is in response to your request seeking access to and copies of the documentary evidence referred to in footnote 130 of Chapter 5 of the September 11 (9/11) Commission Report.If the SEC had responded by producing documents showing that the pre-9/11 put options had an innocent explanation (such as a hedge made by a smaller airline), that would be understandable.
We have been advised that the potentially responsive records have been destroyed.
If the SEC had responded by saying that the documents were classified as somehow protecting proprietary financial information, I wouldn't like it, but I would at least understand the argument.
But destroyed? Why?