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THE NEW YORK TIMES
September 20, 2001
FBI, SEC on Hunt for Attack - Related Trading
By REUTERS
Filed at 8:07 p.m. ET

WASHINGTON (Reuters) - America's top markets regulator said Thursday that several U.S. agencies, led by the FBI, were investigating whether those behind last week's attacks on the World Trade Center and the Pentagon tried to turn a grisly profit by playing the markets.

``There is a multi-agency effort under way, under the leadership of the Federal Bureau of Investigation, but my agency is actively investigating reports of possible terrorist activity,'' said U.S. Securities and Exchange Commission Chairman Harvey Pitt at a Senate Banking Committee hearing.

As the focus of the global markets investigation shifted to Washington, regulators in France and elsewhere also said they were on the hunt for suspicious trading.

France's COB stock market watchdog said it opened a formal probe into trading in the days leading up to the September 11 airliner attacks that left more than 6,500 dead or missing.

``We are now opening an inquiry which gives us the legal means to investigate the abnormal movements in some stocks before the attacks,'' said the spokeswoman for the COB, or the Commission des Operations de Bourse.

U.S. and French efforts resemble inquiries in Chicago, Germany and Japan into whether anyone aware of the attack planning tried to profit from that inside knowledge by selling short or buying put options related to stocks that have since lost value, including airline, insurance and banking issues.

Selling short and buying puts are both common, but highly risky ways of making money on falling share prices. Responding to a question from a U.S. senator on steps being taken to examine reports of unusual trading prior to the attacks, SEC Chairman Pitt said the agency was moving quickly.

``The difficulty, of course, is in going through a lot of records and dealing with foreign transactions as well,'' he added. ``But I think our enforcement division along with the Federal Bureau of Investigation, is proceeding with alacrity to find out whether there are any violations of law.''

An FBI spokeswoman in Chicago Thursday declined to comment on the status of the investigation.

TREASURY'S O'NEILL CALLS PUT TRADING INCONCLUSIVE

Fingered as prime suspect in the attacks by President Bush is Osama bin Laden, wealthy heir to a Saudi construction fortune who is reputed to be worth $100 million or more. Experts on Mideast extremists said bin Laden and associates may be capable of sophisticated securities market maneuvers.

U.S. Treasury Secretary Paul O'Neill, who also testified at the Senate hearing, said his department was working with the SEC. He said it was unclear whether there was unusual trading in airline stock options prior to the attacks.

``While there's no doubt there was a major shift in the ratios between puts to calls, it's not clear to me yet, from the analysis that's being done, that there's a huge amount of money at risk,'' the Treasury chief said.

A put option is a contract to sell an underlying security at a fixed price by a specified date. A call is a contract to buy under similar terms. Both are traded on the Chicago Board Options Exchange (CBOE), the world's largest options market which said it is looking into pre-attack market activity.

Buying put options in a stock that is falling can be profitable. Analysis of put activity and CBOE traders point to unusual buying in September and October puts of United Airlines parent UAL Corp. before the attack. Unusual activity was also seen in AMR Corp.. UAL and AMR own the two airlines whose jets were hijacked and used as missiles in the attacks.

Traders in Amsterdam noted unusually active trading in options of Dutch airline KLM prior to the attack.

Some industry analysts said spikes in put volumes for these and other issues could be explained by causes unrelated to the attacks, such as profit warnings or routine market timing. Japanese traders said a put option strategy to profit from inside knowledge of the attack was unlikely. Rather, they suggested, selling short Japanese index futures would be more attractive to someone looking for a quick, hard-to-trace hit.

Short-selling is another common, but risky way to exploit a falling share price. Short sellers borrow shares and sell them, then repurchase them at a lower price. Then they pocket the difference as profit and return the shares to their owner.

France's COB said it was looking into unusual selling in some shares, including French insurer AXA. German bankers reported unusual activity in reinsurer Munich Re. The trading is being probed by German regulators.

Japanese traders said they saw no unusual stock lending levels ahead of the attack. The Tokyo Stock Exchange said it was looking into improper dealings, but had no more comment.

When asked about reports of international short sales before the attack, Pitt said, ``We have devoted, as has the FBI, substantial resources to tracking down every rumor.''

U.S. SHORT INTEREST DATA EXPECTED ON FRIDAY

Data on U.S. short-selling that could shed light on whether suspicious trading preceded the attacks is due out Friday, a day late, the New York Stock Exchange said Thursday.

Noted U.S. short-sellers said they doubted whether anyone trying to short airline, insurance or banking stocks -- all hit hard since the attack -- would have done so in America, where shorting is closely watched. Less heavily policed European and Asian markets would have been more attractive, they said.

Regulators from several nations held a global conference call Monday and discussed the possibility that those who organized the attacks had placed large bets aimed at profiting from the carnage, German markets watchdog BAWe said.

Bin Laden and his associates may be capable of pulling off such an audacious speculation, said Bruce Hoffman, terrorism specialist at the research group Rand Corp.

``He's absolutely sophisticated enough...if his finances are managed with the same care he puts into setting up his operations,'' Hoffman said.

``He's shown himself to be far more sophisticated than other terrorist adversaries we've faced. He has considerably enhanced logistical capabilities, dwarfing other terrorist groups.''

Copyright 2001 Reuters Ltd.