- The Washington Times - Wednesday, September 19, 2001

Federal authorities are investigating whether terrorists profited from plunges in the stock of companies hit by last Tuesday's attacks on the World Trade Center and the Pentagon, perhaps to finance further terrorist activities.
An analysis by Bloomberg News found unusual trading activity at 285 times average levels in shares of UAL Corp. and AMR Corp. in the days before terrorists crashed United and American airliners into those buildings.
The trading was by individuals or organizations "short-selling" the stocks on the Chicago Board of Options Exchange that is, purchasing put options that rise when a stock's value falls, enabling the investor to profit from the decline of the stock.
Short-selling of shares in Morgan Stanley Dean Witter & Co., which occupied 22 floors of the 110-story 2 World Trade Center, surged by 25-fold before the attack, Bloomberg found.
The individuals or organizations that purchased the put options contracts stand to earn millions of dollars because of the precipitous decline of the companies' stocks since the attacks.
Officials at the Chicago exchange and the Securities and Exchange Commission both said they are investigating unusual or irregular market activities in the days preceding the attacks.
"We've heard those reports about terrorist involvement in our markets," SEC Chairman Harvey Pitt said. "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."
Lynne Howard, spokeswoman for the exchange, said that regulators there are investigating "trading prior to the news event." The SEC and the exchange both declined to provide any details of the investigations or say what options are being examined.
Securities regulators in Germany and other European and Asian countries also are investigating securities transactions where they suspect the investors had inside knowledge of the attacks before they occurred. German authorities have identified Munich Re, the world's biggest re-insurer, as one of the targets of speculative activities.
Trading records may help show whether Osama bin Laden or other terrorists were behind high-volume 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.
"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.
The securities regulators appear to be drawing on their authority to prohibit inside trading based on inside knowledge of news events in pursuing the investigations.
Rep. John J. LaFalce of New York, the ranking Democrat on the House Financial Services Committee, wrote Mr. Pitt yesterday encouraging the SEC to ask for any additional authority or funding he may need to track possible terrorist trading.
"To the extent that individuals or entities have manipulated the broader markets or have successfully devised schemes to profit from acts of terror, the SEC must use all its resources to find those responsible," Mr. LaFalce said.
Bloomberg found that 1,535 options contracts were traded one day before two American Airlines jets were hijacked, enabling the investors to profit if AMR stock fell below $30 a share before Oct. 20.
AMR shares plunged by $11.70 to $18 on Monday, the first day of U.S. stock trading after the attacks, making those contracts worth $1.6 million, as opposed to $337,700 on the day they were purchased.
Similarly, October $30 put options for UAL soared, with 2,000 contracts traded on Sept. 6, three trading days before the attack. That is up from 27 contracts traded previously.
UAL shares fell $13.32 Monday to $17.50, making the options contracts worth $2.4 million, more than 13 times their $180,000 value on Sept. 6.
At Morgan Stanley, trading in October put options jumped to 2,157 contracts between Sept. 6 and Sept. 10, almost 27 times a previous daily average. Morgan Stanley shares Monday fell $6.40 to $42.50.
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 saw 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 Monday 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. Bear Stearns shares fell $3.79 on Monday 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 Monday to $84.50.
* This story is based in part on wire service reports.

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