9/11 Insider Trading
On September 12, 2001, before the dust had even settled on Ground Zero, the Securities and Exchange Commission opened an investigation into a chilling proposition: that an unknown group of traders with advance knowledge of the 9/11 plot had made millions betting against the companies involved in the attacks.
As Antonio Mora of ABC News explained on September 20, 2001:
“What many Wall Street analysts believe is that the terrorists made bets that a number of stocks would see their prices fall. They did so by buying what they call ‘puts.’ If you bet right the rewards can be huge. The risks are also huge unless you know something bad is going to happen to the company you’re betting against.
“One example, United Airlines. The Thursday before the attack more than two thousand contracts betting that the stock would go down were purchased. Ninety times more in one day than in three weeks. When the markets reopened, United’s stock dropped, the price of the contracts soared and someone may have made a lot of money, fast.”
Although the put options on American and United Airlines are usually cited in reference to the 9/11 insider trading, these trades only represent a fraction of the suspicious trades leading up to the attack. Between August 20th and September 10th, abnormally large spikes in put option activity appeared in trades involving dozens of different companies whose stocks plunged after the attack including Boeing, Merrill Lynch, J.P. Morgan, Citigroup, Bank of America, Morgan Stanley, Munich Re and the AXA Group.
Traders weren’t just betting against the companies whose stocks dove after 9/11, however. There was also a six-fold increase in call options on the stock of defence contractor Raytheon on the day before 9/11. The options allowed the traders to buy Raytheon stock at $25. Within a week of the attack, as the American military began deploying the Raytheon-supplied Tomohawk missiles they would eventually use in the invasion of Afghanistan, the company’s share price had shot up 37% to over $34.
The SEC weren’t the only ones interested in this particular 9/11 money trail, either. Investigations into potential insider trading before the attacks were opened by authorities around the globe, from Belgium to France to Germany to Switzerland to Japan. It wasn’t long before this global financial manhunt started yielding clues on the trail of the terror traders.
On September 17th Italian Foreign Minister Antonio Martino, addressing Italian Consob’s own investigation into potential 9/11 trading, said: “I think that there are terrorist states and organizations behind speculation on the international markets.”
By September 24th the Belgian Finance Minister, Didier Reynders, was confident enough to publicly announce Belgium’s “strong suspicions that British markets may have been used for transactions.”
The president of Germany’s central bank, Ernst Welteke, was the most adamant: “What we found makes us sure that people connected to the terrorists must have been trying to profit from this tragedy.”
These foreign leaders were not alone in their conviction that insider trading had taken place. University of Chicago finance professor George Constantinides, Columbia University law professor John Coffee, Duke University law professor James Cox and other academics as well as well-known options traders like Jon Najarian all expressed their belief that investors had traded on advance knowledge of the attacks.
The scale of the SEC investigation was unprecedented. Examining over 9.5 million securities transactions, including stocks and options in 103 different companies trading in 7 markets, 32 exchange traded funds, and stock indices. The probe drew on the assistance of the legal and compliance staff of the 20 largest trading firms and the regulatory authorities in ten foreign governments. The Commission coordinated its investigation with the FBI, the Department of Justice, and the Department of the Treasury.
“We have not developed any evidence suggesting that those who had advance knowledge of the September 11 attacks traded on the basis of that information.”
Although this sounds like the investigation did not find evidence of insider trading, a second look reveals the trick; they are not saying that there was no insider trading, only that there is no evidence that “those who had advance knowledge of the September 11 attacks” participated in such trading. But this begs the question: who had that advance knowledge, and how did the SEC determine this?
The 9/11 Commission Report begs the question even more blatantly in their treatment of the anomalous put option activity on United Airlines stock on September 6: 95% of the puts were placed by “a single U.S.-based institutional investor with no conceivable ties to al Qaeda.” Again, it is taken as a foregone conclusion that a lack of ties to “al Qaeda” means there could not have been advance knowledge of the attack, even if evidence of insider trading took place.
To be sure, insider trading almost certainly did take place in the weeks before 9/11. Although some have used the commission report to conclude that the story was debunked, the intervening years have seen the release of not one, not two, but three separate scientific papers concluding with high probability that the anomalous trading was the result of advance knowledge.
In “Unusual Option Market Activity and the Terrorist Attacks of September 11, 2001” University of Chicago professor Allen Poteshman concluded: “Examination of the option trading leading up to September 11 reveals
that there was an unusually high level of put buying. This finding is consistent with informed investors having traded options in advance of the attacks.”
In “Detecting Abnormal Trading Activities in Option Markets” researchers at the University of Zurich used econometric methods to confirm unusual put option activity on the stocks of key airlines, banks and re-insurers in the weeks prior to 9/11.
And in “Was There Abnormal Trading in the S&P 500 Index Options Prior to the September 11 Attacks?” a team of researchers concluded that abnormal activity in the S&P index options market around the time of the attack “is consistent with insiders anticipating the 9-11 attacks.”
The only question, then, is who was profiting from these trades and why was no one ever indicted for their participation in them?
One lead is pursued by researcher and author Kevin Ryan. In “Evidence for Informed Trading on the Attacks of September 11” he examines an FBI briefing document from 2003 that was declassified in 2009. It describes the results of FBI investigations into two of the pre-9/11 trades that the Bureau had identified as suspicious, including the purchase of 56,000 shares of Stratesec in the days prior to 9/11. Stratesec provided security systems to airports (including, ironically, Dulles Airport, as well as the World Trade Center and United Airlines), and saw its share price almost double when the markets re-opened on September 17th, 2001.
The trades traced back to a couple whose names are redacted from the memo, but are easily identifiable from the unredacted information: Mr. and Mrs. Wirt D. Walker III, a distant relative of the Bush family and business partner of Marvin Bush, the president’s brother. The document notes that the pair were never even interviewed as part of the investigation because it had “revealed no ties to terrorism or other negative information.”
In addition to begging the question, this characterization is provably false. As Ryan notes:
“Wirt Walker was connected to people who had connections to al Qaeda. For example, Stratesec director James Abrahamson was the business partner of Mansoor Ijaz, who claimed on several occasions to be able to contact Osama bin Laden. Additionally, Walker hired a number of Stratesec employees away from a subsidiary of The Carlyle Group called BDM International, which ran secret (black) projects for government agencies. The Carlyle Group was partly financed by members of the bin Laden family.”
More importantly, and not coincidentally, Walker has multiple connections to the Central Intelligence Agency.
“Mr. Walker ran a number of suspicious companies that went bankrupt, including Stratesec, some of which were underwritten by a company run by a first cousin of former CIA director (and President) George H.W. Bush. Additionally, Walker was the child of a CIA employee and his first job was at an investment firm run by former US intelligence guru, James ‘Russ’ Forgan, where he worked with another former CIA director, William Casey.”
Was this why the FBI thought better of questioning him over his highly profitable purchase of Stratesec shares right before 9/11?
The CIA figures prominently in another line of investigation. One suspicious United Airlines put option purchase that was investigated by the FBI involved a 2,500 contract order for puts in the days before 9/11. Instead of processing the purchase through United Airlines’ home exchange, the Chicago Board of Options Exchange, the order was split into five 500 contract chunks and run through five different option exhchanges simultaneously. The unusual order was brokered by Deutsch Bank Alex. Brown, a firm that until 1998 was chaired by A.B. “Buzzy” Krongard, a former consultant to CIA director James Woolsey who at the time of 9/11 was himself the Executive Director of the CIA.
According to researcher Michael Ruppert, Krongard’s job at the brokerage “was to oversee ‘private client relations.’ In this capacity he had direct hands-on relations with some of the wealthiest people in the world in a kind of specialized banking operation that has been identified by the U.S. Senate and other investigators as being closely connected to the laundering of drug money.”
Perhaps the most frank admission of insider trading is notable for three things: it was recorded on video, it has never been investigated by any agency or law enforcement official, and it was made by former CIA agent and frequent foreign policy commentator Robert Baer, the real-life inspiration for the character portrayed by George Clooney in “Syriana.” Talking to citizen journalists after a speaking event in Los Angeles in 2008, Baer was recorded on video making a startling assertion about 9/11 insider trading: “I know the guy who went into his broker in San Diego and said ‘cash me out, it’s going down tomorrow.’” Questioned about the story, he added: “His brother worked at the White House.”
This truly remarkable statement bears further scrutiny. If Baer is to be believed, a former CIA agent has first-hand knowledge that a White House insider had foreknowledge of the attacks, and to this day not only has Baer never revealed the identity of this person, but no one has questioned him about his statement or even attempted to pursue this lead.
So how is it possible that the SEC overlooked, ignored, or simply chose not to pursue such leads in their investigation? The only possible answer, of course, is that the investigation was deliberately steered away from such persons of interest and any connections that would lead back to foreknowledge by government agencies, federal agents, or their associates in the business world.
Unfortunately we will likely never see documentary evidence of that from the Commission itself. One researcher requesting access under the Freedom of Information Act to the documentary evidence that the 9/11 Commission used to conclude there had been no insider trading received a response that stated “that the potentially responsive records have been destroyed.”
Instead, we are left with sources that refuse to be identified saying that CBOE records of pre-9/11 options trading have been destroyed and second-hand accounts of traders who had heard talk of an event in advance of 9/11.
In a round-about way, perhaps the 9/11 Commission reveals more than it lets on when it tries to dismiss key insider trades with the pithy observation that the traders had no conceivable ties to Al Qaeda. If those with foreknowledge of the attacks weren’t connected to Al Qaeda, what does that say about the identity of the real 9/11 perpetrators?