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Document Friday: “Terrorist-Insider-Trading?” The SEC’s Pre-September 11, 2001 Trading Review.

April 30, 2010

The Seal of the United States Securities and Exchange Commission

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.“

The Security and Exchange Commission's letter to the National Security Archive explaining its "discretionary release" of the document.

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.

10 Comments leave one →
  1. Tim permalink
    May 1, 2010 3:48 am

    Nate, you are funny.

    You write:
    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.“

    Poteshman (the some theories guy) never says Al-Qaeda made the trades but only that there was evidence of informed trading.

    It is your assertion that this means either Al-Qaeda or someone else. Since the SEC’s report states that Al-Qaeda did not originate the trades, this leaves someone else as the informed trader.

    You and the SEC have not disproved Poteshman at all.

    You also neglected to mention the other paper on the subject, “Detecting Informed Trading Activities in the Options Markets” by Marc Chesney, Remo Crameri, Loriano Mancini.
    http://www.isb.uzh.ch/publikationen/pdf/publ_2098.pdf

    This paper also confirms the idea that there was informed trading not only on the airlines but also on the insurers.

    But the SEC report only suggests an origin for the airline trading in the investment letter of Steve Sarnoff. The issue of what triggered the insurer puts is not addressed in their report.

    The fact that both were bet against is significant.

    So who is the someone else?

    The SEC only says that they know them, that they are part of the established order, and that they claimed they were not guilty.

    And that is the end of the matter?

    • Nate Jones permalink*
      May 3, 2010 10:42 am

      Thanks for the comment and link.

      For the record, I’m not giving my personal opinion on the matter, just sharing the SEC’s report.

      Feel free to analyze and critique it to your heart’s content.

      That’s why I put it out there.

      😀

  2. May 1, 2010 10:13 pm

    I have seen it claimed (source not in my foggy brain at the moment) that proceeds from at least one notably substantial (hundreds of thousands or millions) profitable trade of the kind described in this article were never claimed for payment.

    Anybody got details ? If substantiated, such an instance would serve as possible repudiation of this SEC exoneration.

    Semantically, “those who had advance knowledge of the September 11 attacks“
    as officially specified by the U.S. govt is a dubiously small & inaccurate filter in the view of 9/11 Truth tinfoil hat wearers such as myself.

    Which, if any, govt officials, corporate officers or their associates publicly noted to have canceled scheduled air travel immediately prior to this infamy crossreference as individuals placing or profiting from related a priori vulture trades ?

  3. October 11, 2010 7:58 pm

    thanks for sharing Document Friday: “Terrorist-Insider-Trading?” The SEC’s Pre-September 11, 2001 Trading Review.

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