Document Friday: “Terrorist-Insider-Trading?” The SEC’s Pre-September 11, 2001 Trading Review.
Who used advance knowledge of the Nine Eleven attacks to bet against the markets and cash in? No one, according to this 2002 Securities and Exchange Commission investigation entitled “Pre-September 11, 2001 Trading Review,” which was recently released to the National Security Archive under the Freedom of Information Act. To reach its conclusion, the investigation analyzed 9.5 million securities transactions including securities and derivatives products of 103 companies in six industry groups that traded in seven different markets, as well as other “broad and narrow indices.”
Aside from this finding, this report is also significant because its release was likely a tangible result of President Obama’s day-one pronouncement that agencies must “adopt a presumption in favor of disclosure.” The release follows Attorney General Holder’s instruction that agencies should “not withhold information simply because [they] may do so legally.” The report was originally alluded to –but not published– in the 9-11 Commission Report (see page 172 and page 499, note 130). After six years of Archive FOIA requests, appeals, and wrangling, the Commission’s General Counsel finally wrote to the Archive on 6 April 2010 that, “while other FOIA exemptions may apply [portions of the document are redacted], I have determined it would serve the public interest to disclose that information [the remainder of the investigation].”
The SEC review began on 12 September 2001 and covered the period from 20 August 2001 to 11 September 2001. The report’s conclusion contradicts some theories which assert that Al-Qaeda (or another individual or entity) used knowledge of the imminent 9-11 attacks to bet against the markets. The report clearly states, “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.“
United Airlines and American Airlines are the two stocks most frequently cited as being sold short before the attacks. The Commission’s report finds that there was a sharp uptick of put options (similar to short selling) on United and American stock on 6 September 2001 and 10 September 2001. However, the report concluded that these upticks were due to the release of lackluster airline industry figures and a recommendation from Options Hotline, a market newsletter. The 9 September 2001 newsletter recommended that readers utilize a put option on American Airlines stock because the company was “under pressure” and that its stock price was likely to decrease.
The investigation also analyzed five other industry groups: insurers; financial services; defense and aerospace; security providers; and travel and leisure services. In each case, the SEC reviewers (often working in conjunction with the DOJ, FBI, foreign governments, and trading houses) did not identify “suspicious activity” prior to 11 September.
The report’s conclusion strongly asserts that no individuals used foreknowledge to profit from the 9-11 terrorist attacks:
“We have not developed any evidence that suggests that those who had advance knowledge of the attacks traded on the basis of that information. In every instance where we noticed unusual trading before the attack, we were able to determine, either through speaking directly with those responsible for the trading, or by reviewing trading records, that the trading was consistent with a legitimate trading strategy.”
While this report is unlikely to dispel theories of “terrorist-insider-trading,” it remains an important –if six-years-belated– addition to our collective body of evidence pertaining to the 11 September 2001 attacks.