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by Robert Manor and Melissa Allison
September 19, 2001, Chicago Tribune
Securities regulators around the world
are investigating whether the terrorists involved in last week's attack
profited in financial markets, possibly by buying options on the stock
of United Airlines, Boeing, American Airlines and other companies in the
knowledge that prices would fall.
Traders say a suspiciously high volume of
preattack options trades in AMR Corp., parent of American, and UAL
Corp., United's parent, in particular, yielded huge profits after
terrorists crashed aircraft belonging to the two airlines into the World
Trade Center and the Pentagon.
The Chicago Board Options Exchange said
Wednesday it is investigating options trading prior to the attack.
Sources familiar with the matter said the
Securities and Exchange Commission is also investigating whether
terrorists traded options or other financial instruments to capitalize
on the calamity they were planning.
One Chicago trader said the big increase
in options trading is evidence that some people knew about the coming
disaster.
"Somebody knew about it, whether it was a
broker or somebody who knew these guys, or it's one of these terrorist
cells," said Jon Najarian, founder of options specialist Mercury Trading
in Chicago.
If investigators turn up evidence the
terrorists meant to profit by the drop in stock prices, it could be
useful in identifying those behind the attack and disrupting their
sources of money, experts said.
The Foreign Terrorist Asset Tracking
Center, a task force made up of the CIA, FBI, Treasury Department,
Secret Service and IRS, was set up several days ago to expose the
financial holdings of Osama bin Laden and other terrorists. The task
force "is collecting this information for the purpose of identifying the
various sources of funding these organizations are receiving," said one
Treasury official, on condition of anonymity. "It takes a significant
amount of capital to organize these attacks."
In any case, someone was buying
extraordinarily large numbers of a financial instrument called put
options in the days before the attack.
Put options give the buyer the right to
sell a stock at a fixed price by a certain date. People buy put options,
known as puts for short, in the belief a stock's price is about to fall.
Most puts expire after 90 days, so an investor typically buys them
shortly before he expects the stock's price to drop.
Put options in United, Boeing and
American all grew in value when the stock market reopened Monday because
stock prices of the three companies fell dramatically. United, for
example, fell $13.32 during the day.
On Sept. 6, put volume on United Airlines
was 3,150, more than four times its average daily put volume this year,
according to data from the Options Clearing Corp. Put volume for Boeing
on Sept. 7 totaled 27,294, more than five times its average daily put
volume this year.
The day before the attacks, put volume on
American Airlines stock was 4,516, nearly 11 times its average daily
volume for the year.
The insurance industry, also expected to
be hard hit by the effects of the terrorist attacks, saw similar plays
on its put options. Citigroup, which has a large insurance arm, and
insurance broker Marsh & McLennan Cos. experienced extraordinarily high
put volumes just days before the attacks.
Overseas, regulators were said to be
investigating trades in reinsurance companies, those that underwrite the
exposures of insurance companies and may have to pay big claims stemming
from the attacks.
Buyers made millions
Buyers of the puts made huge sums of
money. Najarian, the Chicago trader, noted that 1,535 puts purchased the
day before the attack "gave the buyer the right to sell 153,500 shares
at $30." When American's stock price fell, the owner of those puts
gained $1.7 million.
Many millions of dollars would have been
made on similar puts at exchanges here and elsewhere.
The Boeing put volumes did not ring alarm
bells at the Chicago Board Options Exchange, because large institutional
clients sometimes place orders that big, said Michael Hoban at ZH
Partners JV, the specialist for Boeing at the CBOE. "In retrospect, it
makes you think back, that maybe it was something linked to [the
attacks]," Hoban said. "Let the investigators determine that."
At the Tribune's request, Chris Johnson,
managing quantitative analyst with Schaeffer's Investment Research,
examined the big jump in American's put options on the day before the
attack.
"We saw an increase of 73 percent in one
trading session before the day of the incident," Johnson said. "That is
significant."
Some experts suggest that bin Laden, if
he is behind the attacks, may also have motivation to try to profit from
them.
bin Laden advisers
Although bin Laden is known to be
rich--he inherited $80 million at the age of 13 and operates dozens of
businesses in the Middle East and Africa--anti-terrorist analysts doubt
that he can by himself finance a global campaign against the U.S. "He
has got some very astute and adept people working for him," said Steven
Emerson, head of the Investigative Project, a counterterrorist research
institute in Washington. Emerson said bin Laden has access to
accountants and other advisers capable of putting together an assault on
the world's financial markets.
Associates of bin Laden have carried out
sophisticated financial crimes in the past. After the 1993 bombing of
the World Trade Center, investigation showed bin Laden and others in the
Middle East had made an estimated $100 million a year through consumer
coupon fraud.
Ben Jacobson, CEO of the investigative
consulting firm Peregrine Group, testified before Congress about the
fraud. He said people associated with bin Laden ran an extensive
operation stealing coupons offering discounts on groceries and other
items and returning them to clearing houses for reimbursement.
Copyright © 2006, Chicago Tribune
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