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Spin from a spook-haunted journal owned by the Rev. Moon. Enough said?
MacNamara
http://www.insightmag.com/news/251677.html
Not Much Stock in 'Put' Conspiracy
Posted May 13, 2002
By Kelly Patricia O'Meara
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.
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