There has been a great deal of talk about alleged insider trading of airline stocks by associates of Osama bin Laden prior to the Sept. 11 attacks on the World Trade Center and the Pentagon. Government investigators remain tight-lipped about a Department of Justice (DOJ) probe of possible profiteering by terrorists with advance knowledge of the attacks despite data that show trading activity on at least two of the most obvious stocks don't support the premise.
In fact, based on financial information almost immediately available to investigators, even the most febrile conspiracy theorists would have to agree that this dog don't hunt. For instance, much of the speculation involves "put" options — a bet that a stock will go down — on American and United airlines, the two carriers whose planes hijackers seized for the attacks. Yes, there was a spike in puts on those airlines just days before, but the data show such spikes weren't anomalous.
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 would have yielded speculators between $2 million and $4 million in profit — hardly what any analyst would call a killing in the options markets. Based on historical data for both airlines, the put options just prior to Sept. 11 neither were dramatic nor unprecedented.
For example, there were repeated spikes in put options on American Airlines during the year before Sept. 11, including June 19 with 2,951 puts, June 15 at 1,144 puts, April 16 at 1,019 and Jan. 8 at 1,315 puts. United Airlines puts were a little more during the prior year, including Aug. 8 at 1,678 puts, July 20 with 2,995, April 6 at 8,212 and March 13 at 8,072. Since such relatively small spikes in options occur frequently and in a random pattern, why would respected financial analysts and government investigators cry foul?
That is the mystery. Because the matter still is under investigation, none of the government investigating bodies — including the FBI, the Securities and Exchange Commission (SEC) and DOJ — are speaking to reporters about alleged 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 — which, given the known financial information about trading in the equities of the two airlines used in the attacks, seems curious.
Lynne Howard, a spokeswoman for the Chicago Board Options Exchange (CBOE), tells Insight that information about who made the trades was available immediately. "We would have been aware of any unusual activity right away. It would have been triggered by any unusual volume. 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."
Howard continues, "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 who 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 (see "Snoops and Spies," Feb. 22, 1999), and we share all information with the Securities and Exchange Commission."
Given all of this, at a minimum the CBOE and government regulators who are conducting the secret investigations have known for some time who made the options puts on United and American airlines. The silence from the investigating camps could mean any of several things: Either terrorists are responsible for the puts on the airline stocks; others besides terrorists had foreknowledge; the puts were just lucky bets by credible investors; or, there is nothing whatsoever to support the insider-trading rumors.
Adam Hamilton of Zeal LLC, a North Dakota-based private consulting company that publishes research on markets worldwide, has looked at the numbers and doesn't see a conspiracy. "I read a lot of stories about the illicit profits, but it didn't make sense to me because the amounts of money that reportedly were made didn't seem large enough for someone with foreknowledge about some drastic and catastrophic drop in stock prices. I heard that $22 million in profits was made on these put options — that's a trivial amount of money for big-time options traders. After all, it makes sense that if you had advance knowledge of the Sept. 11 events you could have made hundreds of millions or even billions of dollars betting against these and other stocks that would have been affected. Sure, it makes a much more attractive story to write there's a huge conspiracy, but the numbers don't necessarily show this."
Historically, Hamilton continues, "airlines are a poor investment and have never made money for investors. There are lots of reasons to sell these stocks short that have nothing to do with Sept. 11. I haven't seen anything that raises any red flags on at least these two stocks when you consider the numbers. With United there were 2,075 put options, with each put option representing 100 shares of stock. So someone had control of 207,500 shares of United. The stock dropped from $31 to $18, so that's a $13 profit, or $2.7 million on the put options. If you were going to plan something as complex as taking down those towers, why wouldn't you have made a billion or $10 billion betting on oil or shorting the NASDAQ?"
Anyway, says Hamilton, "recall that the market was in bad shape in the summer and early fall, and you know there were a lot of people who believed that there would be a sell-off in the market long before Sept. 11. For instance, American Airlines was at $40 in May and fell to $29 on Sept. 10; United was at $37 in May and fell to $31 on Sept. 10. These stocks were falling anyway and it would have been a good time to short them. I like to think of this as an urban legend now. I think it is the World Trade Center urban legend."
According to Hamilton, "People have talked about 4,000 Israelis not going to work that day in the towers, which turned out to be ridiculous, and there are numerous other tales that haven't panned out. All of them seem to be false stories that are surrounding this pivotal event in our lives. But fortunately we have data in this case and, contrary to what has been reported, I just don't see any red herrings here."
While it seems curious that investigators are continuing to be so closed-mouthed about these airline-stock trades, it is clear that a much wider net has been cast, apparently looking for bigger corporate fish involved in dubious financial activity on the markets.
Just a month after the attacks the SEC sent out a list of 38 stocks to various securities firms around the world looking for information. The list includes stocks of American, United, Continental, Northwest, Southwest and USAirways airlines, as well as Boeing, Lockheed Martin, the American International Group, AIG, Cigna, CAN Financial, John Hancock, MetLife, General Motors, Raytheon, W.R. Grace, Lone Star Technologies, American Express, the Bank of New York, Bank One, Citigroup, Lehman Brothers, Bank of America, Morgan Stanley and Bear Stearns.
Investors in any of these companies could have ensured themselves of huge returns with foreknowledge of the attacks. But, if the historical data resemble those of United and American airlines, such suspicions deserve nothing more than a curt "So what?"
Kelly Patricia O'Meara is an investigative reporter for Insight.