If terrorists were behind the largest insider trading scam in history, where is the evidence? Nick Mathiason investigates
The Observer, Sunday September 30 2001
As conspiracy theories go, it is one of the best. Not only did shadowy Middle Eastern terrorists kill more than 6,000 people in one of the most audacious atrocities ever, but they made a financial killing to boot. How? By short-selling shares and derivatives in the days leading up to the attack. Then, as the markets went into freefall, they mopped up cheap stock at a handsome profit.
Circumstantial evidence supports this. On 6 and 7 September, there was a huge surge in trading on options in airline and insurance sectors. In particular, insurance companies such as Swiss Re and Munich Re, which face massive liabilities from the destroyed World Trade Centre in New York, experienced heavy trading. British Airways saw huge volumes of 'put' contracts on Liffe, the London futures and options market. In Amsterdam, traders were 'astonished' to see huge rises in put options in KLM, the Dutch airline. Buyers of put options try to make money from an anticipated fall in a company's share price.
Conspiracy theory proponents have heavyweight backing. Last weekend Ernst Welteke, the president of the German Bundesbank, said there were unusual movements in equities, oil and gold on the Thursday and Friday before the terror attacks. He said it was possible that those with knowledge of the attacks could have sold stock before the event. The result was a media frenzy of reports saying shadowy Islamic groups could have conducted the largest and most chilling piece of insider dealing in history.
US author Jeffrey Robinson, who wrote The Laundrymen, a book about counterfeiting, this weekend told The Observer: 'Suddenly there was trading well out of proportion. The irony is that it might have passed through Merrills and Cantor. That's really sick if it went through people in the WTC. Something very strange was going on.'
Corporate investigators say individual hijack cells would probably be unaware that there was a coordinated plan to seize four or five planes. But the supreme strategist would have known that the terrorist operation would have a devastating effect on world markets, and acted accordingly.
There is one problem with this argument. It is impossible to perpetrate an insider dealing scam without leaving a paper trail. And days of trawling through so-called suspicious transactions have come to nothing.
Carol Sargeant, head of regulation and risk at the Financial Services Authority, said: 'We've done a huge amount of work. So far we've found absolutely nothing. There are still a few leads but we are running out of them.'
The story is the same at Liffe, the Chicago Board of Trade and the US Securities and Exchange Commission, which is pleading for bankers and brokers to step forward with information. Could it be that the media is trying to give terrorists undue credit by leaping on the merest suggestion of insider dealing?
On the Thursday and Friday before the attack, world markets went into freefall on the back of higher than expected US unemployment figures. International bourses saw more than 5 per cent wiped off during the week. Markets were trading at three-year lows similar to the depths of the Asian and Russian financial crises.
One of the company's in question, Swiss Re, saw a steep decline in its price after the company's interims were worse than brokers expected. The figures sent the whole insurance sector - already depressed since so many insurance products are linked to equities - hurtling downwards. British Airways fell sharply to a year low after Deutsche Bank analysts downgraded the stock from 'market perform' to 'underperform'.