Insider
Trading
Pre-9/11
Put Options on Companies Hurt by Attack Indicates Foreknowledge
Financial transactions
in the days before the attack suggest that certain individuals used
foreknowledge of the attack to reap huge profits.
1
The evidence of
insider trading includes:
-
Huge surges in
purchases of put options on stocks of the
two airlines
used in the attack -- United Airlines and American Airlines
-
Surges in
purchases of put options on stocks of
reinsurance companies
expected to pay out billions to cover losses from the attack -- Munich Re
and the AXA Group
-
Surges in
purchases of put options on stocks of
financial services companies
hurt by the attack -- Merrill Lynch & Co., and Morgan Stanley and Bank of
America
-
Huge surge in
purchases of call options of stock of a
weapons manufacturer
expected to gain from the attack -- Raytheon
-
Huge surges in
purchases of
5-Year US
Treasury Notes
In each
case, the anomalous purchases translated into large profits as soon as the stock
market opened a week after the attack: put options were used on stocks that
would be hurt by the attack, and call options were used on stocks that would
benefit.
Put and call options
are contracts that allow their holders to sell and buy assets, respectively, at
specified prices by a certain date. Put options allow their holders to profit
from declines in stock values because they allow stocks to be bought at market
price and sold for the higher option price. The ratio of the volume of put
option contracts to call option contracts is called the put/call ratio. The
ratio is usually less than one, with a value of around 0.8 considered normal.
2
Losers
American
Airlines and United Airlines, and several insurance companies and banks posted
huge loses in stock values when the markets opened on September 17. Put options
-- financial instruments which allow investors to profit from the decline in
value of stocks -- were purchased on the stocks of these companies in great
volume in the week before the attack.
United Airlines
and American Airlines
Two of
the corporations most damaged by the attack were American Airlines (AMR), the
operator of
Flight 11
and
Flight 77,
and United Airlines (UAL), the operator of
Flight 175
and
Flight 93.
According to CBS News, in
the week before the attack, the put/call ratio for American Airlines was four.
3
The put/call ratio for United Airlines was 25 times above normal on September 6.
4
|
 |
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This graph shows a dramatic spike in pre-attack purchases of put
options on the airlines used in the attack. (source:
www.optionsclearing.com)
|
The spikes in
put options occurred on days that were uneventful for the airlines and their
stock prices.
|
On Sept. 6-7, when there was no significant news or stock price movement
involving United, the Chicago exchange handled 4,744 put options for UAL
stock, compared with just 396 call options -- essentially bets that the
price will rise. On Sept. 10, an uneventful day for American, the volume
was 748 calls and 4,516 puts, based on a check of option trading
records.
5
|
The Bloomberg News reported that put
options on the airlines surged to the phenomenal high of 285 times their
average.
|
Over three days before terrorists flattened the World Trade Center and
damaged the Pentagon, there was more than 25 times the previous daily
average trading in a Morgan Stanley "put" option that makes money when
shares fall below $45. Trading in similar AMR and UAL put options, which
make money when their stocks fall below $30 apiece, surged to as much as
285 times the average trading up to that time.
6
|
When the
market reopened after the attack, United Airlines stock fell 42 percent from
$30.82 to $17.50 per share, and American Airlines stock fell 39 percent, from
$29.70 to $18.00 per share.
7
Reinsurance
Companies
Several
companies in the reinsurance business were expected to suffer huge losses from
the attack: Munich Re of Germany and Swiss Re of Switzerland -- the world's two
biggest reinsurers, and the AXA Group of France. In September, 2001, the San Francisco Chronicle estimated
liabilities of $1.5 billion for Munich Re and $0.55 bilion for the AXA Group and
telegraph.co.uk estimated
liabilities of £1.2 billion for Munich Re and £0.83 billion for Swiss Re.
8
9
Trading
in shares of Munich Re was almost double its normal level on September 6, and 7,
and trading in shares of Swiss Re was more than double its normal level on
September 7.
10
Financial
Services Companies
Merrill
Lynch and Morgan Stanley Morgan Stanley Dean Witter & Co. and Merrill Lynch &
Co. were both headquartered in lower Manhattan at the time of the attack. Morgan
Stanley occupied 22 floors of the
North Tower
and Merrill Lynch had headquarters near the Twin Towers. Morgan Stanley, which
saw an average of 27 put options on its stock bought per day before September 6,
saw 2,157 put options bought in the three trading days before the attack.
Merrill Lynch, which saw an average of 252 put options on its stock bought per
day before September 5, saw 12,215 put options bought in the four trading days
before the attack. Morgan Stanley's stock dropped 13% and Merrill Lynch's stock
dropped 11.5% when the market reopened.
11
Bank of America
showed a fivefold increase in put option trading on the Thursday and Friday
before the attack.
|
A
Bank of America option that would profit if the No. 3 U.S. bank's stock
fell below $60 a share had more than 5,900 contracts traded on the
Thursday and Friday before the Sept. 11 assaults, almost five times the
previous average trading, according to Bloomberg data. The bank's shares
fell 11.5 percent to $51 in the first week after trading resumed on
Sept. 17.
12
|
Winners
While most
companies would see their stock valuations decline in the wake of the attack,
those in the business of supplying the military would see dramatic increases,
reflecting the new business they were poised to receive.
Raytheon
Raytheon, maker
of Patriot and Tomahawk missiles, saw its stock soar immediately after the
attack. Purchases of call options on Raytheon stock increased sixfold on the day
before the attack.
|
A
Raytheon option that makes money if shares are more than $25 each had
232 options contracts traded on the day before the attacks, almost six
times the total number of trades that had occurred before that day. A
contract represents options on 100 shares. Raytheon shares soared almost
37 percent to $34.04 during the first week of post-attack U.S. trading.
13
|
Raytheon
has been fined millions of dollars inflating the costs of equipment it sells the
US military. Raytheon has a secretive subsidiary, E-Systems, whose clients have
included the CIA and NSA.
14
US Treasury
Notes
Five-year US
Treasury notes were purchased in abnormally high volumes before the attack, and
their buyers were rewarded with sharp increases in their value following the
attack.
|
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 SEC's
Investigation
Shortly
after the attack the SEC circulated a list of stocks to securities firms around
the world seeking information.
16
A
widely
circulated article
states that the stocks flagged by the SEC included those of the following
corporations: American Airlines, United
Airlines, Continental Airlines, Northwest Airlines, Southwest Airlines, US
Airways airlines, Martin, Boeing, Lockheed Martin Corp., AIG, American Express
Corp, American International Group, AMR Corporation, AXA SA, Bank of America
Corp, Bank of New York Corp, Bank One Corp, Cigna Group, CNA Financial, Carnival
Corp, Chubb Group, John Hancock Financial Services, Hercules Inc., L-3
Communications Holdings, Inc., LTV Corporation, Marsh & McLennan Cos. Inc.,
MetLife, Progressive Corp., General Motors, Raytheon, W.R. Grace, Royal
Caribbean Cruises, Ltd., Lone Star Technologies, American Express, the Citigroup
Inc., Royal & Sun Alliance, Lehman Brothers Holdings, Inc., Vornado Reality
Trust, Morgan Stanley, Dean Witter & Co., XL Capital Ltd., and Bear Stearns.
An October 19
article in the San Francisco Chronicle
reported that the SEC, after a period of silence, had undertaken the
unprecedented action of deputizing hundreds of private officials in its
investigation:
|
The proposed system, which would go into effect immediately, effectively
deputizes hundreds, if not thousands, of key players in the private
sector.
...
In a two-page statement issued to "all securities-related entities"
nationwide, the SEC asked companies to designate senior personnel who
appreciate "the sensitive nature" of the case and can be relied upon to
"exercise appropriate discretion" as "point" people linking government
investigators and the industry.
17
|
Michael Ruppert,
a former LAPD Detective, explains the consequences of this action:
|
What happens when you deputize someone in a national security or
criminal investigation is that you make it illegal for them to disclose
publicly what they know. Smart move. In effect, they become government
agents and are controlled by government regulations rather than their
own conscience. In fact, they can be thrown in jail without a hearing if
they talk publicly. I have seen this implied threat time and again with
federal investigations, intelligence agents, and even members of the
United States Congress who are bound so tightly by secrecy oaths and
agreements that they are not even able to disclose criminal activities
inside the government for fear of incarceration.
18
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Interpreting
and Reinterpreting the Data
An analysis of
the press reports on the subject of apparent insider trading related to the
attack shows a trend, with early reports hightlighting the anomalies, and later
reports excusing them. In his book Crossing
the Rubicon Michael C. Ruppert illustrates this point by first
excerpting a number of reports published shortly after the attack:
-
A
jump in UAL (United Airlines) put options 90 times (not 90 percent)
above normal between September 6 and September 10, and 285 times
higher than average on the Thursday before the attack.
-- CBS News, September 26
-
A
jump in American Airlines put options 60 times (not 60 percent)
above normal on the day before the attacks.
-- CBS News, September 26
-
No
similar trading occurred on any other airlines
-- Bloomberg Business Report, the Institute for Counterterrorism (ICT),
Herzliyya, Israel [citing data from the CBOE] 3
-
Morgan Stanley saw, between September 7 and September 10, an
increase of 27 times (not 27 percent) in the purchase of put options
on its shares. 4
-
Merrill-Lynch saw a jump of more than 12 times the normal level of
put opinions in the four trading days before the attacks.
5
[Excerpted ENDNOTES]
3. "Mechanics of Possible Bin Laden Insider Trading Scam," Herzlyya
International Policy Institute for Counter Terrorism (ICT), September
22, 2001. Michael C. Ruppert, "The Case for Bush Administration Advance
Knowledge of 9-11 Attacks,"
From the
Wilderness April 22, 2002. Posted at Centre for Research
and Globalization <www.globalresearch.ca/articles/RUP203A.html>.
4. ICT, op. cit, citing data from the Chicago Board of Options Exchange
(CBOE). [...] "Terrorists trained at CBPE."
Chicago Sun-Times,
September 20, 2001, <www.suntimes.com/terror/stories/cst-nws-trade20.html>.
"Probe of options trading link to attacks confirmed," [...]
Chicago Sun-Times,
September 21, 2001, <www.suntimes.com/terror/stories/cst-fin-trade21.html>.
5. ICT, op. cit.
19
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Ruppert then
illustrates an apparent attempt to bury the story by explaining it away as
nothing unusual. A September 30 New York
Times article claims that "benign explanations are turning up"
in the SEC's investigation.
20
The article blames the activity in put options, which it doesn't quantify, on
"market pessimism," but fails to explain why the price of the stocks in the
airlines doesn't reflect the same market pessimism.
The fact that
$2.5 million of the put options remained unclaimed is not explained at all by
market pessimism, and is evidence that the put option purchasers were part of a
criminal conspiracy.
21
German firm probes final World Trade Center deals
German
computer experts are working round the clock to unlock the truth behind an
unexplained surge in financial transactions made just before two hijacked planes
crashed into New York's World Trade Center on September 11.
Were criminals responsible for the sharp rise in credit card transactions
that moved through some computer systems at the WTC shortly before the planes
hit the twin towers?
Or was it coincidence that unusually large sums of money, perhaps more than
$100 million, were rushed through the computers as the disaster unfolded?
A world leader in retrieving data, German-based firm Convar is trying to
answer those questions and help credit card companies, telecommunications firms
and accountants in New York recover their records from computer hard drives that
have been partially damaged by fire, water or fine dust.
Using a pioneering laser scanning technology to find data on damaged computer
hard drives and main frames found in the rubble of the World Trade Center and
other nearby collapsed buildings, Convar has recovered information from 32
computers that support assumptions of dirty doomsday dealings.
"The suspicion is that inside information about the attack was used to send
financial transaction commands and authorisations in the belief that amid all
the chaos the criminals would have, at the very least, a good head start," said
Convar director Peter Henschel.
"Of course it is also possible that there were perfectly legitimate reasons
for the unusual rise in business volume," he told Reuters in an interview.
Profiting from disaster?
"It could turn out that Americans went on an absolute shopping binge on that
Tuesday morning. But at this point there are many transactions that cannot be
accounted for," Henschel said.
"Not only the volume but the size of the transactions was far higher than
usual for a day like that. There is a suspicion that these were possibly planned
to take advantage of the chaos."
Nearly 3,300 people were killed in the attacks that destroyed the World Trade
Center.
Some 30,000 people in the buildings, symbols of America's financial might,
were able to escape between the time the planes crashed and about an hour later
when they collapsed -- even though many of the unmanned computers continued
working.
The United States blames the Al Qaeda group led by Saudi-born Osama bin Laden
for the attack and has since waged war on the Taliban regime in Afghanistan that
sheltered them.
Advance knowledge of attack?
There are several data retrieval companies in the United States and Europe,
but Convar said it has won the lion's share of the contracts from the World
Trade Center because of its laser scanning technology.
Convar developed the laser scanner two years ago that made it possible to
retrieve data from badly damaged computers.
With a staff of 30 in its high-security facility in Pirmasens near the French
border, the firm has worked with the US armed forces in Germany as well as
German federal police for the last 15 years.
Its offices in Pirmasens, a town of 36,000 still suffering from the departure
of some 4,000 American soldiers stationed here during the Cold War, are closely
guarded behind high fences and monitored by dozens of security cameras.
Inside the building, an endless series of code-operated door locks keeps
unwelcome visitors away. In the centre of the facility is a 120 square metre
(1,292 square foot), dust-free "clean room" where the damaged computer drives
are coaxed back to life.
Citing client privacy, Henschel declined to say which companies Convar is
working for, or provide details about the data retrieved so far. But he said the
raw material, up to 40 gigabytes per computer hard drive, is sent immediately by
satellite or courier back to New York.
Money trail
Richard Wagner, a data retrieval expert at the company, said illegal
transfers of more than $100 million might have been made immediately before and
during the disaster.
"There is a suspicion that some people had advance knowledge of the
approximate time of the plane crashes in order to move out amounts exceeding
$100 million," Wagner said. "They thought that the records of their transactions
could not be traced after the main frames were destroyed."
The companies are paying between $20,000 and $30,000 for each computer
recovered, Henschel said.
The high recovery costs are one reason why only a limited number of hard
drives are being examined. Convar has turned down a request by one British
newspaper to try to recover personal last hour e-mails sent by someone trapped
in the doomed building.
Henschel said the companies in the United States were working together with
the FBI to piece together what happened on September 11 and that he was
confident the destination of the dubious transactions would one day be tracked
down.
"We have been quite surprised that so many of the hard drives were in good
enough shape to retrieve the data," he said.
"The contamination rate is high. The fine dust that was everywhere in the
area got pressed under high pressure into the drives. But we've still been able
to retrieve 100 percent of the data on most of the drives we've received.
"We're helping them find out what happened to the computers on September 11
as quickly as possible. I'm sure that one day they will know what happened to
the money."
