No quick answers in terror trading probe
Los Angeles Times
Oct. 17, 2001 20:35:00
Government investigators don't appear to be coming up with quick answers in their probe of possible insider trading by terrorists ahead of the Sept. 11 attacks.
Despite what seemed to some people initially to be a glaring case of market manipulation, no evidence has emerged publicly to indicate that those tied to the attacks tried to gain financially from them.
"To date, there are no flags or indicators" showing that terrorists used trading strategies known as "short selling" to profit from the attacks, Dennis Lormel, chief of the FBI's financial-crimes unit, told a Congressional committee Oct. 3.
Some experts now say they doubt that such a scheme took place. What appears to be suspicious activity in some stocks may turn out to have been legitimate trading, they say.
What's more, there is doubt that the terrorist organization that went to great lengths to plan and conceal the attacks would have risked leaving behind a paper trail that could expose its identity.
"It would be out of pattern (for them) to just lead us so easily to their tracks," said Nikos Passas, a Temple University expert on international financial crimes. "If they (tried to manipulate the market) it would have been a strategic mistake on their part, and their track record so far shows they don't make such mistakes."
Nevertheless, the FBI, the Securities and Exchange Commission and other agencies continue to search for evidence that terrorists may have sought to profit from the post-attacks plunge in the securities of airlines and other companies.
Regulators are examining whether terrorists shorted certain stocks or whether they bought "put" options giving them the right to sell their holdings at a set price.
In a short sale, stock is borrowed from a brokerage and sold. The trader's goal is to replace the borrowed shares at cheaper prices later. Thus, a short seller must make two transactions that should be traceable: first, the sale of stock; then the purchase of new shares to close out the trade.
U.S. and foreign investigators are focusing on trading in 38 stocks, according to a notice posted on the Web site of a Canadian securities-industry trade group. Included are shares of airlines such as AMR Corp., parent of American, and UAL Corp., parent of United; insurers such as Marsh & McLennan Cos. and American International Group; and brokerages such as Morgan Stanley and Lehman Bros.
At first glance, the activity in some of those stocks just before Sept. 11 raised eyebrows. For example, the total number of shorted shares of UAL surged 40 percent between mid-August and mid-September, according to New York Stock Exchange data.
There also was extremely heavy buying of put contracts on Marsh & McLennan stock throughout the first half of August and again in early September, according to erlangersqueezeplay.com, a Web site tracking options activity.
To their advantage, regulators have conducted this sort of insider-trading probe many times in the last two decades. Though the stakes are higher than ever before, the process is the same: It involves combing through a labyrinth of trading records in the United States and abroad - an exercise at which the SEC has become skilled, experts say.
Crucial to the investigation, they add, is the cooperation of other countries.
Regulators are adept at tracing financial activities within the United States, and can fairly easily obtain records from domestic brokerages, experts say. That process probably was completed in the initial days of the probe.
But if the financial trail leads overseas, the probe's outcome could hinge on how successful U.S. regulators are at tracking down leads from abroad, several experts said.
"The government's ability to trace information abroad is largely - almost exclusively - dependent on the cooperation of the government of that country," said Bill Lawler, a former Justice Department prosecutor who now is a partner with Vinson & Elkins in Washington, D.C. "Once they get to a country that says, 'No, we're just not going to help you,' that would be the dead-end." |
