The SEC investigation had built-in redundancies to ensure that any suspicious trading
would be caught. For example, the SEC reviewed massive transaction records to detect
any suspicious option trading and also obtained reports, known as the Large Option
Position Reports and Open Interest Distribution Reports, that identified the holders of
substantial amounts of options without regard to when those options were purchased.
Similarly, to ensure full coverage, the SEC obtained information from a number of
entities that play a role in facilitating short sales. Between these efforts, the work of the
SROs, and the outreach to industry, the chief SEC investigator expressed great
confidence that the SEC investigation had detected any potentially suspicious trade.
No Evidence of Illicit Trading in the United States
The U.S. government investigation unequivocally concluded that there was no evidence
of illicit trading in the U.S. markets with knowledge of the terrorist attacks. The
Commission staff, after an independent review of the government investigation, has
discovered no reason to doubt this conclusion.
To understand our finding, it is critical to understand the transparency of the U.S.
markets. No one can make a securities trade in the U.S. markets without leaving a paper
trail that the SEC can easily access through its regulatory powers. Moreover, brokerdealers
must maintain certain basic information on their customers. It is, of course,
entirely possible to trade through an offshore company, or a series of nominee accounts
and shell companies, a strategy that can make the beneficial owner hard to determine.
Still, the investigators could always detect the initial trade, even if they could not
determine the beneficial owner. Any suspicious profitable trading through such accounts
would be starkly visible. The investigators of the 9/11 trades never found any blind alleys
caused by shell companies, offshore accounts, or anything else; they were able to
investigate the suspicious trades they identified. Every suspicious trade was determined
to be part of a legitimate trading strategy totally unrelated to the terrorist attacks.
National Commission on Terrorist Attacks Upon the United States
148
Many of the public reports concerning insider trading before 9/11 focused on the two
airline companies most directly involved: UAL Corp., the parent company of United
Airlines, and AMR Corp., the parent company of American Airlines. Specifically, many
people have correctly pointed out that unusually high volumes of put options traded in
UAL on September 6â7 and in AMR on September 10.169
When the markets opened on September 17, AMR fell 40 percent and UAL fell 43
percent. The suspicious options trading before the attacks fueled speculation that al
Qaeda had taken advantage of the U.S. markets to make massive profits from its
murderous attacks. The allegations had appeal on their faceâjust as al Qaeda used our
sophisticated transportation system to attack us, it appeared to have used our
sophisticated markets to finance itself and provide money for more attacks. But we
conclude that this scenario simply did not happen.
Although this report will not discuss each of the trades that profited from the 9/11 attacks,
some of the larger trades, particularly those cited in the media as troubling, are illustrative
and typical both of the nature of the government investigation into the trades and of the
innocent nature of the trading. The put trading in AMR and UAL is a case in point: it
appeared that somebody made big money by betting UAL and AMR stock prices were
going to collapse, yet closer inspection revealed that the transactions were part of an
innocuous trading strategy.
The UAL trading on September 6 is a good example. On that day alone, the UAL put
option volume was much higher than any surrounding day and exceeded the call option
volume by more than 20 timesâhighly suspicious numbers on their face.170 The SEC
quickly discovered, however, that a single U.S. investment adviser had purchased 95
percent of the UAL put option volume for the day. The investment adviser certainly did
not fit the profile of an al Qaeda operative: it was based in the United States, registered
with the SEC, and managed several hedge funds with $5.3 billion under management. In
interviews by the SEC, both the CEO of the adviser and the trader who executed the trade
explained that theyâand not any clientâmade the decision to buy the put as part of a
trading strategy based on a bearish view of the airline industry. They held bearish views
for a number of reasons, including recently released on-time departure figures, which
suggested the airlines were carrying fewer passengers, and recently disclosed news by
AMR reflecting poor business fundamentals. In pursuit of this strategy, the adviser sold
short a number of airline shares between September 6 and September 10; its transactions
included the fortunate purchase of UAL puts. The adviser, however, also bought 115,000
shares of AMR on September 10, believing that their price already reflected the recently
released financial information and would not fall any further. Those shares dropped
significantly when the markets reopened after the attacks. Looking at the totality of the
adviserâs circumstances, as opposed to just the purchase of the puts, convinced the SEC
that it had absolutely nothing to do with the attacks or al Qaeda. Still, the SEC referred
169 See, e.g., September 18, 2001 Associated Press Report.
170 A high ratio of puts to calls means that on that day far more money was being bet that the stock price
would fall than that the stock price would rise. Such a ratio is a potential indicator of insider tradingâ
although it can also prove to have entirely innocuous explanations, as in this case.Terrorist Financing Staff Monograph
149
the trade to the FBI, which also conducted its own investigation and reached the same
conclusion.
The AMR put trading on September 10 further reveals how trading that looks highly
suspicious at first blush can prove innocuous. The put volume of AMR on September 10
was unusually high and actually exceeded the call volume by a ratio of 6:1âagain,
highly suspicious on its face. The SEC traced much of the surge in volume to a California
investment advice newsletter, distributed by email and fax on Sunday, September 9,
which advised its subscribers to purchase a particular type of AMR put options. The SEC
interviewed 28 individuals who purchased these types of AMR puts on September 10,
and found that 26 of them cited the newsletter as the reason for their transaction. Another
27 purchasers were listed as subscribers of the newsletter. The SEC interviewed the
author of the newsletter, a U.S. citizen, who explained his investment strategy analysis,
which had nothing to do with foreknowledge of 9/11. Other put option volume on
September 10 was traced to similarly innocuous trades.
Another good example concerns a suspicious UAL put trade on September 7, 2001. A
single trader bought more than one-third of the total puts purchased that day, establishing
a position that proved very profitable after 9/11. Moreover, it turns out that the same
trader had a short position in UAL callsâanother strategy that would pay off if the price
of UAL dropped. Investigation, however, identified the purchaser as a well-established
New York hedge fund with $2 billion under management. Setting aside the unlikelihood
of al Qaeda having a relationship with a major New York hedge fund, these trades looked
facially suspicious. But further examination showed the fund also owned 29,000 shares of
UAL stock at the timeâall part of a complex, computer-driven trading strategy. As a
result of these transactions, the fund actually lost $85,000 in value when the market
reopened. Had the hedge fund wanted to profit from the attacks, it would not have
retained the UAL shares.
These examples were typical. The SEC and the FBI investigated all of the put option
purchases in UAL and AMR, drawing on multiple and redundant sources of information
to ensure complete coverage. All profitable option trading was investigated and resolved.
There was no evidence of illicit trading and no unexplained or mysterious trading.
Moreover, there was no evidence that profits from any profitable options trading went
uncollected.
