Massive pre-attack ‘insider trading’ offer authorities hottest trail to accomplices
by Kyle F. Hence
Centre for Research on Globalisation (CRG), globalresearch.ca , 21 April 2002
Part II — Billions in Pre-911 Insider Trading Profits Leaves a Hot Trail: How Bush Administration Naysayers May Have Let it go ColdPart I of Making a Killing provided a glimpse of a shadowy, legitimized global financial network that is employed by criminals of all kinds to carry out or manage the profits from all manner of nefarious activity. It documented how the Bush Administration in 2001 undermined, stalled and withdrew from a global effort to clamp down on money laundering. We learned the indirect connection Enron had to intense lobbying efforts which ultimately swayed the Administration. And how following the attacks of 9-11, Bush changed his tune and working with allies in the war on terrorism, seized over $100 million linked to Al Qeada and other terrorist groups. Unfortunately, this is likely the tip of the iceberg of drug and terror money that is managed by the highest echelons of double-breasted gucci suited criminals.
In Part II, we will examine closely what is likely the largest, most globalized and heinous case of insider trading in economic history and how it offered authorities a hot money trail to follow. If successful in tracking the perpetrators, authorities would not only be successful in implicating obvious accomplices in the 9-11 attacks, but also would be able to strike deeply into the infrastructure of a shadow financial network and hundreds of billions of dollars that flow through it.
As of mid-March, authorities say they have frozen over $100 million in terrorist assets. But how to strike deeper to prevent future attacks? Some believe the answer lies at the end of the paper trail that investigators are following from huge insider trading placed on carefully selected stocks in the days leading up to 9-11.
According to Phil Erlanger, a former Senior Technical Analyst with Fidelity , and founder of a Florida firm that tracks short selling and options trading, insiders made off with billions (not mere millions) in profits by betting on the fall of stocks they knew would tumble in the aftermath of the WTC and Pentagon attacks. [http://www.erlangersqueezeplay.com ] Andreas von Bulow, a former member of the German Parliament, once responsible for the oversight of the German secret services, estimated that profits by insider traders were $15 billion. CBS offered a far more conservative figure when it reported (Sept 26) that "at least seven countries are dissecting suspicious trades that may have netted more than $100 million in profits."
Regardless of estimates, to Dylan Ratigan of Bloomberg Business News, the evidence was compelling; "This is the worst case of insider trading ever." [Good Morning Texas, Sept. 20, 2001] The sheer scope, size and the uncanny timing of 9-11 insider trading demanded an aggressive investigation. But the stakes involved, with nearly 3000 dead, have never been higher for financial crimes investigators.
Suspicious trading was first identified by Japanese authorities. But soon concerns were raised and a pattern could be discerned in countries around the world including Singapore, Hong Kong, Italy, France, Switzerland, the Netherlands, Great Britain, Germany and Canada. 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 US to North America to Europe." [World News Tonight, Sept. 20, 2001] Investigators were soon hot on the trail on a matter of obvious national security to many nations.
Bloomberg News reported that Former chief of Enforcement at the SEC; William McLucas said regulators will "certainly be able to track down every trade, where the trade cleared, where the trade was directed from." However, Treasury Secretary O’Neill downplayed hopes for a successful investigation by pointing out the challenge of penetrating veils of secrecy before a name can be attached to a suspicious trade; "You’ve got to go through ten veils before you get to the real source." [AP; September 20, testimony before Senate Banking Committee] . Talk about lowering the bar of expectations; very unsettling coming from someone who could help bring to justice those guilty of the worst terrorist attack history–the massacre of thousands.
In the months since these comments, tightlipped authorities have revealed few details. Any questions put to those prosecuting the war on terrorist funding cannot be answered. The familiar refrain is heard; "our investigation is ongoing." Though widely reported in September and October of last year, months have elapsed since the insider trading received attention. The unresolved crime of 9-11 insider trading is a dark cloud that hangs over this administration and its prosecution of the ‘war on terrorism.’ What is worse is that those who profited remain free to use those profits of death to finance their next attack.
For those who dismiss the whole phenomena, here’s what we do know thus far from reports from major newspapers and television news outlets around the globe. Taken separately any of the following details or comments is notable, but taken together and placed in context, the evidence of unprecedented profiteering by terrorists and/or those with prior knowledge is clearly undeniable.
Massive Put Options spikes and ‘Naked’ calls Bloomberg News reported that put options in UAL Corp (parent for United Airlines) surged 285 times the average volume and 75 times the total number of put options traded up until that time. This was the largest reported spike. In another observation of the same phenomena reported in the September 22nd Herald Sun, UAL put options contracts soared 90 times in one day over total from the previous three weeks. That’s 90x not 90%. On September 10, put option contracts on AMR (parent for American Airlines) spiked 60 times the daily average and five times the total of all $30 put options traded before September 10. ["Pre-attack trading probed: Regulators in U.S., Europe and Asia check put options"; Judy Mathewson and Michael Nol, September 19]
"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 quoted in The San Francisco Chronicle.
Bloomberg.com and Erlangersqeezeplay.com published reports identifying a clear pattern of highly unusual, and in some cases, massive spikes in put options in stocks that would have been deemed by those with detailed prior knowledge most likely hardest hit in the market aftermath of a WTC attack. These were primarily airline (UAL and AMR, notably not Delta), insurance, brokerage and hotel stocks. Phil Erlanger also noted a pattern of significant spikes in ‘naked calls’ in the same stocks. Naked calls are a high-risk form of short selling not backed up by stock position in the company at issue.
Thirty-eight companies were placed on a SEC list and circulated amongst brokerages that placed the put options on behalf of clients. These included among many others, TD Waterhouse, NFS (subsidiary of Fidelity of Boston), Alex Brown/Deutsche Bank, Goldman Sachs, and Lehman Brothers. [The San Francisco Chronicle; AP]. In the January 2002 Congressional record, an informal survey conducted by Levin-Grassley staffs, revealed that 10 of 22 responding securities and brokerage firms, managed accounts for 45,000 offshore clients.
Below are a few standouts on the SEC list [‘ *’ indicates a WTC tenant; (-x) represents the multiple over average volume]: Airlines: UAL (285x), AMR (60x) Insurance sector: Marsh & McLennan (93x)*, Citigroup (45x), Swiss Re, XL Capital Brokers: Bear Stearns (60x), Morgan Stanley (27x)*, Merrill Lynch (12x)
Not included on the SEC list, but featured on the Erlangersqeezeplay.com report, were hotel chains Marriott, Hilton and Starwood Hotels. Most anomalous were the huge put option trading spikes placed in only two of the three major US airlines. Almost always, if investors believe the airline industry is due to drop, they will short all three major carriers. This was not the case here because Delta did not see spikes similar to UAL and AMR.
Analysts also noted that though the insurance sector was one of the strongest in a depressed stock market, there were huge spikes in put options in Marsh & McLennan and in Citigroup. Marsh & McLennan, the biggest insurance broker, was a World Trade Center tenant with 1,700 employees. It also saw, next to UAL, the highest spike in put options; thus you have a confluence of facts that, in the minds of many experienced traders and experts, amounts to unequivocal evidence of foul play. Clearly traders placed bets based on sure-fire insider prior knowledge. The odds against this happening randomly or coincidentally are astronomical; probably incalculable.
The put options, though they received the bulk of news coverage, were reportedly only one of several instruments used by the insiders. Suspicious trading in 5-year bonds and in oil and gold futures was also noted, and presumably investigated.
Oil and gold futures The Associated Press reported on September 22nd that a German Central Bank study strongly points to "terrorism insider trading" not only in airline and insurance companies but also in gold and oil futures. These he said, "could not be chalked up to coincidence." Bundesbank President, Ernst Welteke, said that though it would be "extremely difficult to really verify" but he believed "in one or the other case it will be possible to pinpoint the source."
Unusual high volume in pre-attack 5 year bond trading The Wall Street Journal reported on October 2 that the Secret Service had begun a probe into an unusually high volume of five-year US Treasury note purchases made prior to the attacks. The Treasury note transactions included a single $5 billion trade. The Journal noted that "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 after the events of September 11.
‘Last hours’ surge of financial activity at WTC According to a Reuters report of December 16, German data retrieval experts, hired by WTC tenant firms, were mining data off damaged hard disks recovered from the ground zero. The goal is to discover who was responsible for the movement of unusually large sums of money through the computers of the WTC in the hours before the attack. Peter Henschel, director of Convar, the firm responsible, said, "not only the volume, but the size of the transactions was far higher than usual for a day like that." Richard Wagner, a data retrieval expert estimated that more than $100 million in illegal transactions appeared to have rushed through the WTC computers before and during the disaster.
The evidence and comments offered by traders, analysts, bankers and others in the immediate aftermath indicates there was, in fact, a carefully planned and sophisticated effort of massive profiteering from the precipitous fall of stocks that occurred when trading opened following the attack. This is expert documentation and observations based on years of experience. The implications are absolutely frightening. And all the more reason for authorities to pull out all the stops to identify and prosecute those responsible and shut down the global financial network facilitated the most heinous of crimes. Unfortunately, that’s not exactly what’s happened.
‘Naysayers’ raise suspicions; Enron diverts attention from dire National security issue Months have passed since the launch of investigations by the SEC, NYSE, CBOE (Chicago Board of Options Exchange), Department of Justice, FBI, Secret Service, CIA, Department of Treasury, and the NSA. And yet there is no news, no suspects, no prosecutions, nothing. There are fears now that early ‘naysayers’ may have let a hot trail to go cold and allowed the terrorist insiders to cover their tracks. Despite all the evidence to the contrary, the FBI’s Dennis Lormel said on October 3, 2001 before Congress that there were "no flags or indicators" referring to mere "rumors" about the pre-attack insider trading.
The Enron scandal, beginning in October, followed on the heels of the 9-11 attack and subsequent investigations into Enron began to divide and stretch the limited resources of the agencies and regulators involved. The media focus began to shift as well with six or eight Congressional committees holding hearings and providing all sorts of media drama. Congress began to look toward remedies to stave off a total crisis of confidence in our economic system, and justifiably so. Obviously, the largest bankruptcy in US history, affecting thousands of employees with 401k plans and millions of pensioners, merits serious attention. Ironically, it may lead them to crack down on the same infrastructure; employed by Enron’s Andrew Fastow and terrorist alike.
However, a case could be made that the focus on Enron has diverted attention away from a matter of far greater national security. The insiders, possibly the masterminds behind the suicide attacks, have walked away with huge profits for their sophisticated pre-attack trading; estimated by some to be in the billions of dollars. More to the point, they are now planning and financing their next attack with these 9-11 takings, as yet unmolested by a genuinely aggressive U.S. effort to shut them down.
In light of the weighty and compelling evidence, Lormel’s insistence there were "no flags or indicators" of possible terrorist insider trading, is blatantly wrong or worse, suspect. Most of the information above, including Bloomberg trading charts documenting massive put options spikes, was in the public domain prior to his testimony. Yet, Lormel claimed there was no indication of suspicious trading. Why then were investigations launched by over a dozen nations and 8 or 9 U.S. government agencies, exchanges and commissions? How does one account for supporting comments of the traders and analysts with years of hands-on experience in the markets?
Lormel’s testimony, coming from an official charged with tracking down, and starving terrorists of funding to protect Americans does little to inspire confidence; especially in the wake of the worst intelligence failure in US history. On the contrary, such remarks only raise very uncomfortable suspicions and legitimate concern that the forces behind walls of financial secrecy are so powerful as to thwart or intimidate the highest echelon of those responsible for executing our nation’s war on terrorism. Or on drug trafficking. Or on Enronomic tax evasion and corporate fraud for that matter.
The obvious challenge for authorities is to put these suspicions to rest and follow the money trail to those complicit in the attacks. To do so, requires investigators to break through the veils of bank secrecy in offshore tax havens that may protect terrorists and Enron profiteers alike. Unfortunately, thanks to the Bush Administrations withdrawal from last year’s FATF efforts, investigators may be having difficulty in doing so. And once again, the trail may have gone cold. And yet it is not unreasonable to expect that given such a matter of national security, Congress and the authorities would pull out ALL the stops. They would act quickly to force financial entities to divulge the names of those who placed the trades in question.
Surely, ‘the most powerful nation in the world’ can apply enough pressure on non-cooperating financial jurisdictions to force them to reveal the identities of terrorists who could attack again at any moment. The reality of the threat of more attacks precludes the use of past excuses and inaction. The Cayman Islands, Nauru, indeed most offshore havens lack standing armies. While it may be perhaps ‘the hardest of nuts to crack,’ the urgency and justification demands we do whatever is necessary to do so, at little risk to our nation’s armed forces.
A real war on terrorism would lead to seizures of billions not millions. Nothing close to this level has yet occurred and the investigation has yielded little in five months. According to a statement by Representative LaFalce on the Congressional Record, the Treasury Department, as of late January had failed to exercise, even once, their new powers to pressure non-cooperating overseas and offshore financial facilities. Investigators into pre-attack trading have not implicated a single insider, terrorist or otherwise. UN efforts are creeping along ineffectively with many nations failing to fully cooperate or not cooperate at all, as divulged to the press by American UN Ambassador Negroponte at a February event aired on C-SPAN. There is a distressing and suspicious pattern here. The administration’s will to pursue this matter is sorely lacking.
Another case in point: In December of 2000, the U.S. and Russia co-sponsored a UN Security Council resolution to freeze monies linked to designated terrorists. The list included five alleged close associates of Bin Laden–Amin al-Haq, Saqar al-Jadawi, Ahmad Sa’id Al-Kadr, Sa’d A-Sharif and Bilal bin Marwan. Inexplicably the U.S. Treasury did not officially place these five on the U.S. blacklist until October 12, 2001. Why the delay of ten months and who is responsible for it? Naturally, this case raises further suspicion, as it rightly should, regarding the intent and integrity of those charged with protecting our national interests and security.