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The Honolulu Advertiser
Posted on: Wednesday, September 19, 2001

Terrorist profiteering in stocks investigated

Associated Press

CHICAGO — The world's largest options market said yesterday it is investigating reports of unusual trading activity before last week's terrorist attacks.

The Chicago Board Options Exchange declined to discuss the investigation. But an independent check of publicly available records shows that unidentified investors placed exceptionally high numbers of put options — bets that prices would fall — on the stocks of United and American, the two airlines targeted by suicide hijackers.

The statement comes as investigators and regulators worldwide are trying to determine whether terrorists tried to profit from stock and option trading ahead of the attacks on the World Trade Center and the Pentagon.

On Monday, Germany's stock market regulator said it was looking into claims of suspicious short-selling just before the Sept. 11 attacks.

The Chicago exchange, which often investigates reports of suspicious trading linked to possible advance knowledge of takeovers or mergers, declined to elaborate on the investigation. Spokesmen for the Securities and Exchange Commission also refused comment.

The SEC has received information from other U.S. regulators about possible suspicious trading earlier this month in put options, contracts that give the holder the right to sell an asset at a specified price before a certain date, and some index futures, according to a government source.

The Chicago exchange trades options on the stocks of about 1,400 companies along with 38 stock-based indexes, including the Dow Jones industrial average, the S&P 500 and the Nasdaq 100.

All fell sharply in the aftermath of the attacks, which would have meant substantial profits for anyone who had bet on their decline by buying put options or through short-selling. Short-sellers borrow stock and sell it in anticipation of buying it back later at a lower price.

In the days before the attacks, unusually high numbers of put options were purchased for the stocks of AMR Corp. and UAL Corp., the parent companies of American and United airlines. There was no such trend involving other carriers.

On Sept. 6-7, when there was no significant news or stock price movement involving United, the Chicago exchange handled 4,744 put options for UAL stock compared with just 396 call options — bets that the price will rise. On Sept. 10, an uneventful day for American, the volume was 748 calls and 4,516 puts, based on a check of option trading records.

This past Monday, the first day of trading since the attacks, shares of AMR fell 39 percent and UAL stock plunged 42 percent.

According to a report in The Wall Street Journal, the SEC said it had received information from various U.S. agencies Friday about possible trading by terrorists in industries affected by the bombing, including insurance and the airlines, and also about possible put-option or futures-index trading.

"I saw put-call numbers higher than I've ever seen in 10 years of following the markets, particularly the options markets," John Kinnucan of Broadband Research, an independent telecommunications research firm, told the San Francisco Chronicle. "...The first thing one does is ask oneself, 'What is the explanation? What are people worried about?"'

The Chicago Mercantile Exchange, Chicago Board of Trade and Commodity Futures Trading Commission declined comment.