9-11 Insider Traders: Why don't we know who they are—or more importantly

9-11 Insider Traders: Why don't we know who they are—or more importantly—why don't we care? By Michael Gaddy

From August 26th to September 11th 2001, events in the stock market should have alerted those in government that something was amiss. Were those trades missed by our "experts' that cost us 30 billion dollars in taxes each year or did our government know what was happening and look the other way? The presently unknown "speculators" operated out of the Toronto, Canada and Frankfurt, Germany, stock exchanges and their profits have been estimated to be in the billions of dollars.

These speculators sold "short" 38 stocks that could reasonably be expected to fall in value as a result of the attacks of September 11. Short selling of stocks involves the opportunity to gain large profits by passing shares to a friendly third party, then buying them back when the price falls.

The U.S. Central Intelligence Agency uses a tool called Promis to monitor the stock exchanges of the world so as to predict traumatic events. Historically, if such trading activity precedes a traumatic event, it is an indication of foreknowledge. Fox News on Oct. 16, 2001, broke stories disclosing the use of sophisticated Promis software by the FBI and the Justice Department. A multitude of court records and investigative reports have established not only the reality, but also the versatility of a program initially designed to incorporate data from a variety of data bases in different languages into one readable format. Fox and the Washington Times have both reported based on interviews with Justice Department officials that PROMIS is used to monitor banking and financial transactions in a virtual real-time environment.

All of the knowledge of these trades was known immediately as they occurred according to an expert with the Chicago Board Options Exchange (CBOE). Lynne Howard of the CBOE said: "We would have been aware of any unusual activity right away. Any unusual volume would have triggered it. There is an automated system called 'blue sheeting,' or the CBOE Market Surveillance System, that everyone in the business knows about. It provides information on the trades - the name and even the Social Security number on an account - and these surveillance systems are set up specifically to look into insider trading. The system would look at the volume, and then a real person would take over and review it, going back in time and looking at other unusual activity. The system is so smart that even if there is a news event that triggers a market event it can go back in time, and even the parameters can be changed depending on what is being looked at. It's a very clever system and it is instantaneous.

Even with the system, though, we have very experienced and savvy staff in our market-regulations area that are always looking for things that might be unusual. They're trained to put the pieces of the puzzle together. Even if it's offshore, it might take a little longer, but all offshore accounts have to go through U.S. member firms - members of the CBOE - and it is easily and quickly identifiable who made the trades. The member firm who made the trades has to have identifiable information about the client under the 'Know Your Customer' regulations (and we share all information with the Securities and Exchange Commission.)"

Taking a look at the specific trades gives us the actual companies that were involved in the trades and the irregular volume. The documented pre-Sept. 11 insider trading that occurred involved only companies hit hard by the attacks. They include United Airlines, American Airlines, Morgan Stanley, Merrill-Lynch, Axa Reinsurance, Marsh & McLennan, Munich Reinsurance, Swiss Reinsurance, and Citigroup.

Not only selling short, but also "put options" were involved in the massive trading in the days prior to September 11. "Put options" are highly leveraged bets, tying up blocks of stock, that a given stock's share price will fall dramatically.

An examination of "put options" during this period with the above-mentioned companies would reveal the following: On Sept. 6, 2001, the Thursday before the tragedy, 2,075 put options were made on United Airlines and on Sept. 10, the day before the attacks, 2,282 put options were recorded for American Airlines. Given the prices at the time, this could have yielded speculators between $2 million and $4 million in profit. This averages out to 75 times the number of normal activity on these entities.

No similar trading occurred on any other airlines. (Bloomberg Business Report, the Institute for Counterterrorism, Herzliyya, Israel citing data from the CBOE) Morgan Stanley saw, between Sept. 7 and Sept.10, an increase of 27 times in the purchase of put options on its shares. (Institute for Counterterrorism Report, Mechanics of Possible Bin-Laden Insider Trading Scam, Sept. 21, citing data from the CBOE) Merrill-Lynch saw a jump of more than 12 times the normal level of put options in the four trading days before the attacks. (CBOE report)

Although quite a number of news agencies reported on such unusual activity in stock trading in the aftermath of September 11th, the subject has all but died in the past 15 months. Could it have been bin Laden and his operatives that profited from this activity? Apparently not, a National Public Radio report on Oct. 16 reported Britain's Financial Services Authority had cleared bin Laden and his operatives of insider trading.

Well, if it wasn't bin Laden, then who made all this money based on prior knowledge that the attacks were going to take place? The Israeli Institute for Counter-Terrorism was the first agency to release a detailed report on the insider trading. That alone is evidence of a direct relationship between the financial markets and terrorist investigations.

We are now engaged in a war that will take thousands of lives and cost untold billions of dollars. Our government has based the heart and soul of this war on its assessment of direct involvement by Iraq and its connections with terrorists and their attacks on this country. Why is this angle of who actually perpetrated the heinous acts of 9/11 not been pursued? If the people who placed these stock market transactions and made millions were not the perpetrators themselves, their prior knowledge makes them accomplices.

Consider the following: Government agencies queried say the matter is still under investigation and so none of the government investigating bodies -including the FBI, the Securities and Exchange Commission (SEC) and DOJ -are speaking to reporters about insider trading. Even so, suspicion of insider trading to profit from the Sept. 11 attacks is not limited to U.S. regulators. Investigations were initiated in a number of places including Japan, Germany, the United Kingdom, France, Luxembourg, Hong Kong, Switzerland and Spain. As in the United States, all are treating these inquiries as if they were state secrets.

Compare that with the following statements made in the days following September 11th.

60 Minutes from Sept. 19, 2001, "Sources tell CBS News that the afternoon before the attack, alarm bells were sounding over unusual trading in the U.S. stock options market." "This could very well be insider trading at the worst, most horrific, most evil use you've ever seen in your entire life…This would be one of the most extraordinary coincidences in the history of mankind if it was a coincidence," said Dylan Ratigan of Bloomberg Business News, interviewed on Good Morning Texas on Sept. 20, 2001.

"I saw put-call numbers higher than I've ever seen in 10 years of following the markets, particularly the options markets," said John Kinnucan, principal of Broadband Research, as quoted in the San Francisco Chronicle.

Germany's Bundesbank chief, Ernst Weltke, said "that a report of the investigation showed "bizarre" fiscal transactions prior to the attacks that could not have been chalked up to coincidence, they could not have been planned and carried out without a certain knowledge, particularly heavy trading in oil and gold futures."

ABC World News reported on Sept. 20, "Jonathan Winer, an ABC News consultant said, it's absolutely unprecedented to see cases of insider trading covering the entire world from Japan, to the U.S., to North America, to Europe."

What were the actual profits garnered by the people with prior knowledge to the horror of 9/11? Andreas von Bulow, a former member of the German Parliament responsible for oversight of Germany's intelligence services estimated the worldwide amount at $15 billion, according to Tagesspiegel on Jan. 13.

Regardless of how we choose to look at this issue, someone made a tremendous profit when their knowledge could have stopped the murder of over 3,000 people and billions of dollars in damages. All the experts in the business tell us the information on who made these trades was available almost instantaneously, up to and including Social Security Numbers! It has been over 18 months now that our government has known who these people are. Why are we not demanding our government tell us who profited from these heinous acts?

Your faith in the apparently incompetent intelligence community is, in some ways, remarkable and honorable. If 9/11 is a settled issue for you, I think that is great. I think, clearly, that Wilsonian liberalism is part of the debatable politic of contemporary American society and applaud your impassioned defense of wars for UN resolution breaking or even global hegemony.

Me, I still sweat over Waco, wondering if Vince was the only honorable one among the lot, taking his own life after playing a role in killing all those children.

I think that is closer to the issue; even if there was nothing, government investigations have played a historic role in limiting conspiracy theory. (One example being House Republican Clinger determining that Vince Foster did indeed commit suicide-- he bothered to release a report that he believed in.)

The fact that the investigation has gone on for a while now without a closing report inherently implies that a sober, skeptical patriot is required to question why there has been no report, no final word.

..."the most aggressive short fund running at the time of the attack was the firm that was wiped out except for their CEO. Can't think of the name but you all remember it."

would you be attempting to refer to Cantor Fitzgerald? they were officed in WTC and lost most all of their employees.

cantor was never known as an operator of a "short fund". their specialty was US Treasury notes & bonds.

coud you be more specific about your "short fund"?

I am a securities regulator. By the time this activity was fully tabulated, end of 10/01. Documents and ID of the accounts compiled, 12/01. Interviews and field investigations, 3/02. Next round of the investigations is plowing through the shell entities, offshore firms, and front orgs located god knows where. That is probably ongoing.

Every time you hear of "charitable organizations" being busted for "possible terrorist ties" think of this article. The people being taken down at this point are either in it up to their eyeballs, or can tell us who is pulling their strings, with a large enough sentence hanging over them.

L,Towm has posted the most plausible explanation (for a trusting soul) that I've seen so far on this subject.

based on previous events like WTC1 & OKC, if the past is any predictor, you've got to wonder if the "investigators" are trying to connect the dots to those involved in hopes of monitoring & surveilling them to "prevent" future disasters?

Sure,

I believe there were 3 or 4 that got wiped out. I could do the Google search again and try and dig them up but there were numerous hedge funds officed in the Towers.

Before you get too defensive on me, the obvious point to me is that Bin Laden and his crew were at their creative zenith during this horrible time and to think they executed a one dimensional attack is to underestimate their ability to make mischief. I think they probably set up some folks and enjoyed the cold irony of using our markets (and greed!) against us as a by product of their brand of terrorism.

An examination of "put options" during this period with the above-mentioned companies would reveal the following: On Sept. 6, 2001, the Thursday before the tragedy, 2,075 put options were made on United Airlines and on Sept. 10, the day before the attacks, 2,282 put options were recorded for American Airlines. Given the prices at the time, this could have yielded speculators between $2 million and $4 million in profit. This averages out to 75 times the number of normal activity on these entities.

No similar trading occurred on any other airlines

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Thanks for the flag. How anyone can dismiss this as normal activity is beyond me. We'll never find out who is responsible because it is part of an "ongoing investigation" and the American people do not have a "need to know" the names of the individuals that profited from the 9-11 attack.

You mean David Alger at Fred Alger management? He wasn't a short fund mangager at all, but a growth manager.This idea of "extraordinary" option activity is a crock to any in the biz, and yes, i'm in the biz.The position sizes were marginal at best.2500 contracts isn't going to be the stuff of James Bondian super villans, when the cleanest way to speculate on the mkt was to short the S&P 500 contract in Singapore.Good Lord, the firms would know who placed the orders and so would the Clearing Corp.

AMR and other airlines were about the weakest industry group in the S&P from early August to Sept 11.They began to cascade downward well before the attacks and when that happens, its kinda normal for option actvity to increase on high volume stocks.But look at the daily totals and you'd see open interest at 3000 contracts.Pffffff...that's nothing.What would catch a regulators eye would be blocks of 50,000 contracts, but then again, it could be involved in arbitrage for a firm account, such as a conversion, so the high volume may not mean a thing, particulary if it is matched to a NYSE floor order for an equvalent block of stock.

I agree you are providing a reasonable explanation, but Congress has a Consitutional duty (oversight) to put out a report concluding that there is nothing here for the purpose of shutting up conspiracy theories.

You should be as interested as anyone who presupposes nefarious action in demanding that a report be released as soon as possible.

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