[ALBSA-Info] FW: U.S., Germany, Japan Investigate Unusual Trading Before Attac k (fwd)

[eriola]

---
Trent Morris
09/18/2001 10:04 AM

Subject:  U.S., Germany, Japan Investigate Unusual Trading Before Attack

U.S., Germany, Japan Investigate Unusual Trading Before Attack
2001-09-18 00:45 (New York)

U.S., Germany, Japan Investigate Unusual Trading Before Attack

     Washington, Sept. 18 (Bloomberg) -- Trading skyrocketed in
options that bet on a drop in UAL Corp. and AMR Corp. stock in the
days before terrorists crashed hijacked United and American
airlines jets into the World Trade Center and the Pentagon.
     Morgan Stanley Dean Witter & Co., which occupied 22 floors of
the 110-story 2 World Trade Center, and Merrill Lynch & Co., with
headquarters near the destroyed twin towers, also experienced pre-
attack trading of 12 times to more than 25 times the usual volume
in so-called put options that profit when stock prices fall,
according to Bloomberg data.
     Now, securities regulators in the U.S., Germany, Japan and
Hong Kong say they are investigating whether terrorists raised
money from insider trading on their knowledge of attacks that
devastated New York's financial district and closed U.S. stock
markets for four days.
     ``They not only set out to destroy capitalism, but also to
beat us at our own game,'' said Duke University law professor
James Cox. ``These are people who hate capitalism and see that you
can turn capitalism against itself.''
     Some airline, insurance, and brokerage stocks had jumps in
the days before the Sept. 11 attack in so-called put options,
which profit when a company's shares fall.
     One day before two American Airlines jets were hijacked and
crashed, for example, 1,535 contracts changed hands on options
that let investors profit if AMR stock falls below $30 per share
before Oct. 20. That was almost five times the total number of
those October $30 put options traded before Sept. 10, according to
Bloomberg data. AMR shares fell $11.70 today to $18.

                    `Terrorist Involvement'

     Those 1,535 contracts were worth $1.6 million at today's
closing price compared with $337,700 at the end of trading on
Sept. 10, according to Bloomberg data. A contract represents
options for 100 shares.
     Similarly, October $30 put options for UAL soared, with 2,000
contracts traded on Sept. 6, three trading days before the attack.
A total of 27 contracts had traded previously. UAL shares fell
$13.32 today to $17.50. The 2,000 contracts were valued at $2.4
million today, compared with $180,000 on Sept. 6.
     ``We've heard those reports about terrorist involvement in
our markets,'' U.S. Securities and Exchange Commission Chairman
Harvey Pitt said in a statement. ``Our enforcement division has
been looking into a variety of market actions that could be linked
to these terrible acts including the subjects of the rumors.''
     Trading records may help show whether Osama bin Laden or
other terrorists were behind suspicious trading in airline,
brokerage, and insurance stocks or options, and may help
securities regulators trace a money trail to some of those
responsible for the attacks at the World Trade Center.

                 Evidence of Murder Plans

     ``It's a matter of great interest to intelligence. To the
extent we find this evidence, we shouldn't just focus on it as
proof of insider trading but as evidence of a desire to commit
murder and terrorism,'' said Columbia University law professor
John Coffee.
     Deutsche Boerse AG spokesman Frank Hartmann said that
exchange and German regulators also are examining trading in
stocks, options, and futures before the Sept. 11 attack. On Sept.
6 and Sept. 7, trading almost doubled the average for the past six
months in shares of Munich Re, the biggest reinsurer. Initial spot
checks had found nothing irregular, Hartmann said.
     A spokeswoman for the Chicago Board Options Exchange declined
comment.
     Japan's Securities and Exchange Surveillance Commission is
probing TOPIX futures trading at the Tokyo Stock Exchange and
Nikkei futures trade at the Osaka Stock Exchange, SESC officials
said, confirming an earlier Jiji news service report.
     Hong Kong's stock exchange and the market regulator are also
checking for unusual trading activities. Banking regulators told
lenders to check suspicious accounts for any connections with
alleged terrorist Osama bin Laden.
     ``There is no evidence of the reported involvement of Hong
Kong in any money-harboring activity related to Osama bin Laden,''
said Jasmin Fung, spokeswoman for the Hong Kong Monetary
Authority. ``However, banks in Hong Kong need to be aware of the
issue.''

                 `Sophisticated Strategists'

     The prospect of insider trading based on knowledge of the
attacks suggests a good deal of sophistication on the part of far-
flung terrorist networks, which may have used U.S. markets to
raise money for more assaults.
     ``It sure presents these people on a whole different level as
sophisticated strategists rather than religious zealots,'' Coffee
said. ``I suppose from their standpoint ... they're trying to pay
for future terrorist activities by profiting from their past
terrorist activities.''
     At Morgan Stanley, trading in October $45 put options jumped
to 2,157 contracts between Sept. 6 and Sept. 10, almost 27 times a
previous daily average of 27 contracts. Options to sell Merrill
Lynch shares for $45 apiece before Sept. 22 had 12,215 contracts
traded from Sept. 5 to Sept. 10, 12 times the earlier daily
average of 252. Morgan Stanley shares fell $6.40 today to $42.50.
Merrill Lynch shares fell $5.37 to $41.48.
     Other brokerage and insurance companies where options trading
surged include:
     -- Citigroup Inc., which has estimated that its Travelers
insurance unit may pay $500 million in claims from the World Trade
Center attack. It had a jump in trading of October options that
profit if shares fall below $40 apiece. Almost 14,000 of those
options contracts were traded from Sept. 6 to Sept. 10 -- about 45
times the previous daily average. Citigroup shares fell $2.85
today to $39.60.
     -- Bear Stearns & Cos., where investors traded 3,979
contracts from Sept. 6 to Sept. 10 on September options that
profit if shares fall below $50. The previous average volume for
those options was 22 contracts. Bear Stearns shares fell $3.79
today to $46.45.
     -- Marsh & McLennan Cos., the biggest insurance brokerage,
which had 1,700 employees working in the World Trade Center.
Traders on Sept. 10 exchanged 1,209 contracts on options that
profit if company shares fall below $90 through the third week of
September. Previously, 13 contracts had traded on an average day.
Marsh & McLennan shares fell $2.50 today to $84.50.

--Judy Mathewson and Michael Nol in Washington and New York, (202)
624-1915 or jmathewson at bloomberg.net < mailto:jmathewson at bloomberg.net
<mailto:jmathewson at bloomberg.net> >  and
(212) 318-2384 or
mnol at bloomberg.net < mailto:mnol at bloomberg.net <mailto:mnol at bloomberg.net> >
, with reporting by Vicky
Stamas in Washington,
Vita Bekker and Silje Skogstad in Frankfurt, Theresa Tang in Hong
Kong and Takahiko Hyuga in Tokyo/bd/ba/ajk/*adbm

Story illustration: To chart trading in AMR Corp.'s October $30