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3 AN ASIA TIMES
ONLINE EXCLUSIVE INVESTIGATION Insider trading 9/11 ...
the facts laid bare By Lars
Schall
Is there any truth in the
allegations that informed circles made substantial
profits in the financial markets in connection to
the terror attacks of September 11, 2001, on the
United States?
Arguably, the best place to
start is by examining put options, which occurred
around Tuesday, September 11, 2001, to an abnormal
extent, and at the beginning via software that
played a
key role: the Prosecutor's
Management Information System, abbreviated as
PROMIS. [i]
PROMIS is a software program
that seems to be fitted with almost "magical"
abilities. Furthermore, it is the subject of a
decades-long dispute between its inventor, Bill
Hamilton, and various people/institutions
associated with intelligence agencies, military
and security consultancy firms. [1]
One of
the "magical" capabilities of PROMIS, one has to
assume, is that it is equipped with artificial
intelligence and was apparently from the outset
“able to simultaneously read and integrate any
number of different computer programs or
databases, regardless of the language in which the
original programs had been written or the
operating systems and platforms on which that
database was then currently installed." [2]
And then it becomes really interesting:
What would you do if you possessed
software that could think, understand every
major language in the world, that provided
peep-holes into everyone else’s computer
"dressing rooms", that could insert data into
computers without people’s knowledge, that could
fill in blanks beyond human reasoning, and also
predict what people do - before they did it? You
would probably use it, wouldn't you? [3]
Granted, these capabilities sound
hardly believable. In fact, the whole story of
PROMIS, which Mike Ruppert develops in the course
of his book Crossing the Rubicon in all its
bizarre facets and turns, seems as if someone had
developed a novel in the style of Philip K Dick
and William Gibson. However, what Ruppert has
collected about PROMIS is based on reputable
sources as well as on results of personal
investigations, which await a jury to take a first
critical look at.
This seems all the more
urgent if you add to the PROMIS capabilities "that
it was a given that PROMIS was used for a wide
variety of purposes by intelligence agencies,
including the real-time monitoring of stock
transactions on all the world´s major financial
markets". [4]
We are therefore dealing
with a software that a) Infiltrates computer
and communication systems without being
noticed. b) Can manipulate data. c) Is
capable to track the global stock market trade in
real time.
Point c is relevant to all that
happened in connection with the never completely
cleared up transactions that occurred just before
September 11, [5] and of which the former chairman
of the Deutsche Bundesbank Ernst Weltke said
"could not have been planned and carried out
without a certain knowledge". [6]
I
specifically asked financial journalist Max
Keiser, who for years had worked on Wall Street as
a stock and options trader, about the put option
trades. Keiser pointed out in this context that he
"had spoken with many brokers in the towers of the
World Trade Center around that time. I heard
firsthand about the airline put trade from brokers
at Cantor Fitzgerald days before." He then talked
with me about an explosive issue, on which Ruppert
elaborated in detail in Crossing the
Rubicon.
Max Keiser: There are
many aspects concerning these option purchases
that have not been disclosed yet. I also worked
at Alex Brown & Sons (ABS). Deutsche Bank
bought Alex Brown & Sons in 1999. When the
attacks occurred, ABS was owned by Deutsche
Bank. An important person at ABS was Buzzy
Krongard. I have met him several times at the
offices in Baltimore. Krongard had transferred
to become executive director at the CIA. The
option purchases, in which ABS was involved,
occurred in the offices of ABS in Baltimore. The
noise which occurred between Baltimore, New York
City and Langley was interesting, as you can
imagine, to say the least.
Under
consideration here is the fact that Alex Brown, a
subsidiary of Deutsche Bank (where many of the
alleged 9/11 hijackers handled their banking
transactions - for example Mohammed Atta) traded
massive put options purchases on United Airlines
Company UAL through the Chicago Board Option
Exchange (CBOE) - "to the embarrassment of
investigators", as British newspaper The
Independent reported. [7]
On September 12,
the chairman of the board of Deutsche Bank Alex
Brown, Mayo A Shattuck III, suddenly and quietly
renounced his post, although he still had a
three-year contract with an annual salary of
several million US dollars. One could perceive
that as somehow strange.
A few weeks
later, the press spokesperson of the Central
Intelligence Agency (CIA) at that time, Tom
Crispell, declined all comments, when he was
contacted for a report for Ruppert´s website From
the Wilderness, and had being asked "whether the
Treasury Department or FBI [Federal Bureau of
Investigation] had questioned CIA executive
director and former Deutsche Bank-Alex Brown CEO
[chief executive officer], A B 'Buzzy' Krongard,
about CIA monitoring of financial markets using
PROMIS and his former position as overseer of
Brown's 'private client' relations." [8]
Just before he was recruited personally by
former CIA chief George Tenet for the CIA,
Krongard supervised mainly private client banking
at Alex Brown. [9]
In any case, after 9/11
on the first trading day, when the US stock
markets were open again, the stock price of UAL
declined by 43%. (The four aircraft hijacked on
September 11 were American Airlines Flight 11,
American Airlines Flight 77 and UAL flights 175
and 93.)
With his background as a former
options trader, Keiser explained an important
issue to me in that regard.
Max Keiser: Put
options are, if they are employed in a
speculative trade, basically bets that stock
prices will drop abruptly. The purchaser, who
enters a time-specific contract with a seller,
does not have to own the stock at the time when
the contract is purchased.
Related to
the issue of insider trading via (put or call)
options there is also a noteworthy definition by
the Swiss economists Remo Crameri, Marc Chesney
and Loriano Mancini, notably that an option trade
may be "identified as informed" - but is not yet
(legally) proven - "when it is characterized by an
unusual large increment in open interest and
volume, induces large gains, and is not hedged in
the stock market". [10]
Open interest
describes contracts which have not been settled
(been exercised) by the end of the trading
session, but are still open. Not hedged in the
stock market means that the buyer of a (put or
call) option holds no shares of the underlying
asset, by which he might be able to mitigate or
compensate losses if his trade doesn't work out,
or phrased differently: one does not hedge,
because it is unnecessary, since one knows that
the bet is one, pardon, "dead sure thing." (In
this respect it is thus not really a bet, because
the result is not uncertain, but a foregone
conclusion.)
In this case, the vehicle of
the calculation was "ridiculously cheap put
options which give the holder the ‘right' for a
period of time to sell certain shares at a price
which is far below the current market price -
which is a highly risky bet, because you lose
money if at maturity the market price is still
higher than the price agreed in the option.
However, when these shares fell much deeper after
the terrorist attacks, these options multiplied
their value several hundred times because by now
the selling price specified in the option was much
higher than the market price. These risky games
with short options are a sure indication for
investors who knew that within a few days
something would happen that would drastically
reduce the market price of those shares." [11]
Software such as PROMIS in turn is used
with the precise intent to monitor the stock
markets in real time to track price movements that
appear suspicious. Therefore, the US intelligence
services must have received clear warnings from
the singular, never before sighted transactions
prior to 9/11.
Of great importance with
regard to the track, which should lead to the
perpetrators if you were seriously contemplating
to go after them, is this:
Max Keiser: The Options Clearing
Corporation has a duty to handle the
transactions, and does so rather anonymously -
whereas the bank that executes the transaction
as a broker can determine the identity of
both parties.
But that may have
hardly ever been the intention of the regulatory
authorities when the track led to, amongst others,
Alvin Bernard "Buzzy" Krongard, Alex Brown &
Sons and the CIA. Ruppert, however, describes this
case in Crossing the Rubicon in full length
as far as possible. [12]
In addition,
there are also ways and means for insiders to veil
their tracks. In order to be less obvious, "the
insiders could trade small numbers of contracts.
These could be traded under multiple accounts to
avoid drawing attention to large trading volumes
going through one single large account. They could
also trade small volumes in each contract but
trade more contracts to avoid drawing attention.
As open interest increases, non-insiders may
detect a perceived signal and increase their
trading activity. Insiders can then come back to
enter into more transactions based on a seemingly
significant trade signal from the market. In this
regard, it would be difficult for the CBOE to
ferret out the insiders from the non-insiders,
because both are trading heavily." [13]
The matter which needs clarification here
is generally judged by Keiser as follows:
Max Keiser: My thought
is that many (not all) of those who died on 9/11
were financial mercenaries - and we should feel
the same about them as we feel about all
mercenaries who get killed. The tragedy is that
these companies mixed civilians with
mercenaries, and that they were also killed. So
have companies on Wall Street used civilians as
human shields maybe?
According to a
report by Bloomberg published in early October
2001, the US Securities and Exchange Commission
(SEC) began a probe into certain stock market
transactions around 9/11 that included 38
companies, among them: American Airlines, United
Airlines, Continental Airlines, Northwest
Airlines, Southwest Airlines, Boeing, Lockheed
Martin Corp., American Express Corp., American
International Group, AXA SA, Bank of America
Corp., Bank of New York Corp., Bear Stearns,
Citigroup, Lehman Brothers Holdings Inc., Morgan
Stanley, General Motors and Raytheon. [14]
So far, so good. In the same month,
however, the San Francisco Chronicle newspaper
reported that the SEC took the unprecedented step
to deputize hundreds, if not even thousands of key
stakeholders in the private sector for their
investigation. In a statement that was sent to
almost all listed companies in the US, the SEC
asked the addressed companies to assign senior
staff for the investigation, who would be aware of
"the sensitive nature" of the case and could be
relied on to "exercise appropriate discretion".
[15]
In essence, it was about controlling
information, not about provision and disclosure of
facts. Such a course of action involves
compromising consequences. Ruppert:
What happens when you deputize
someone in a national security or criminal
investigation is that you make it illegal for
them to disclose publicly what they know. Smart
move. In effect, they become government agents
and are controlled by government regulations
rather than their own conscience. In fact, they
can be thrown into jail without a hearing if
they talk publicly. I have seen this implied
threat time after time with federal
investigators, intelligence agents, and even
members of United States Congress who are bound
so tightly by secrecy oaths and agreements that
they are not even able to disclose criminal
activities inside the government for fear of
incarceration. [16]
Among the reports
about suspected insider trading which are
mentioned in Crossing the Rubicon/From the
Wilderness is a list that was published under the
heading "Black Tuesday: The World's Largest
Insider Trading Scam?" by the Israeli Herzliyya
International Policy Institute for
Counterterrorism on September 21, 2001:
Between September 6 and 7, the CBOE saw
purchases of 4,744 put options on United Airlines,
but only 396 call options. Assuming that 4,000 of
the options were bought by people with advance
knowledge of the imminent attacks, these
"insiders" would have profited by almost $5
million.
On September 10, 4,516 put options on American
Airlines were bought on the Chicago exchange,
compared to only 748 calls. Again, there was no
news at that point to justify this imbalance;
again, assuming that 4,000 of these options trades
represent "insiders", they would represent a gain
of about $4 million.
[The levels of put options purchased above
were more than six times higher than normal.]
No similar trading in other airlines occurred
on the Chicago exchange in the days immediately
preceding Black Tuesday.
Morgan Stanley Dean Witter & Co, which
occupied 22 floors of the World Trade Center, saw
2,157 of its October $45 put options bought in the
three trading days before Black Tuesday; this
compares to an average of 27 contracts per day
before September 6. Morgan Stanley's share price
fell from $48.90 to $42.50 in the aftermath of the
attacks. Assuming that 2,000 of these options
contracts were bought based upon knowledge of the
approaching attacks, their purchasers could have
profited by at least $1.2 million.
Merrill Lynch & Co, with headquarters near
the Twin Towers, saw 12,215 October $45 put
options bought in the four trading days before the
attacks; the previous average volume in those
shares had been 252 contracts per day (a 1200%
increase). When trading resumed, Merrill's shares
fell from $46.88 to $41.50; assuming that 11,000
option contracts were bought by "insiders", their
profit would have been about $5.5 million.
European regulators are examining trades in
Germany's Munich Re, Switzerland's Swiss Re, and
AXA of France, all major reinsurers with exposure
to the Black Tuesday disaster. (Note: AXA also
owns more than 25% of American Airlines stock,
making the attacks a "double whammy" for them.)
[17]
Concerning the statements of the
former chairman of the Deutsche Bundesbank Ernst
Welteke, their tenor in various press reports put
together is as follows:
German central bank president Ernst
Welteke later reports that a study by his bank
indicates, "There are ever clearer signs that
there were activities on international financial
markets that must have been carried out with the
necessary expert knowledge," not only in shares
of heavily affected industries such as airlines
and insurance companies, but also in gold and
oil. [Daily Telegraph, 9/23/2001] His
researchers have found "almost irrefutable proof
of insider trading". [Miami Herald, 9/24/2001]
"If you look at movements in markets before and
after the attack, it makes your brow furrow. But
it is extremely difficult to really verify it."
Nevertheless, he believes that "in one or the
other case it will be possible to pinpoint the
source". [Fox News, 9/22/2001] Welteke reports
"a fundamentally inexplicable rise" in oil
prices before the attacks [Miami Herald,
9/24/2001] and then a further rise of 13 percent
the day after the attacks. Gold rises nonstop
for days after the attacks. [Daily Telegraph,
9/23/2001] [18]
Related to those
observations, I sent a request via e-mail to the
press office of the Deutsche Bundesbank on August
1, 2011, from which I was hoping to learn: How
did the Bundesbank deal with this information? Did
US federal agencies ask to see the study? With
whom did the Bundesbank share this information?
And additionally: 1. Can you confirm that there is
such a study of the Bundesbank concerning 9/11
insider trading, which was carried out in
September 2001? 2. If Yes: what is the
title? 3. If Yes: who were the authors? 4.
If Yes: has the study ever been made available to
the public?
On August 2, I was then
informed: "Your mail has been received by us and
is being processed under the number 2011 /
011551." Ultimately, however, the press office of
the Deutsche Bundesbank was only available for an
oral explanation on the phone. With this
explanation, I then turned to the press office of
the federal financial regulator in Germany, the
Bundesanstalt fur Finanzdienstleistungsaufsicht,
BaFin, with the following e-mail - and that
because of obvious reasons:
Yesterday, I sent a request (see end
of this e-mail) to the press office of the
Deutsche Bundesbank relating to insider trading
connected to the terrorist attacks on September
11, 2001, and respectively relating to an
alleged study carried by the Deutsche
Bundesbank. The request carries the reference
number 2011 / 011551.
The press office
or respectively Mr Peter Trautmann was only
available for an oral explanation. I repeat this
now, because it is related to your entity. This
will be followed by my further questions.
According to an oral explanation from
the press office of the Deutsche Bundesbank,
there has never been a detailed and official
study on insider trading from the Bundesbank.
Rather, there has been probably ad-hoc analysis
with corresponding charts of price movements as
briefings for the Bundesbank board. In addition,
it would have been the duty of the
Bundesfinanzaufsicht to investigate this matter.
The press office of the Bundesbank was also not
willing to give out any written information, not
even after my hint that this alleged study by
the Bundesbank has been floating around the
Internet for years without any contradiction.
That was the oral information from the
Bundesbank press office, or respectively from Mr
Peter Trautmann.
Now my questions for
you: 1. Has the BaFin ever investigated the
9/11 insider trading? 2. With what result?
Have the results been made public? 3. Have
there not been any grounds for suspicion that
would have justified an investigation, for
example as damaged enterprise: Munich Re, and as
buyers of put options of UAL's United Airlines
Company: Deutsche Bank/Alex Brown? 4. Has the
Deutsche Bundesbank ever enquired with BaFin
what information they have regarding the 9/11
insider trading - for example for the creation
of ad-hoc analysis for the Bundesbank? 5.
Have the US federal agencies ever inquired if
the BaFin could cooperate with them in an
investigation? Could you reply to me in
writing, unlike the Deutsche Bundesbank, please?
I would be very grateful for that!
The
next day I did indeed receive an e-mail concerning
this topic from Anja Engelland, the press officer
of the BaFin in which she answered my questions as
follows:
1. Yes, the former
Bundesaufsichtsamt fur Wertpapierhandel, BAWe
(federal supervisory for securities trading),
has carried out a comprehensive analysis of the
operations. 2. As a result, no evidence of
insider trading has been found. Their approach
and results have been published by the BAWe or
BaFin in the annual reports for the years 2001
(cf S 26/27) and 2002 (cf p 156 above first
paragraph). Here are the links. [See here
and here.]
3. See annual reports 2001 and 2002. Put
options on United Airlines were not traded on
German stock exchanges (the first EUREX options
on US equities were introduced only after the
attacks on 9/11/2001); there were warrants on
UAL and other US stocks, but those traded only
in low volumes. 4. I personally do not know
about such a request. Furthermore, the
Bundesbank itself would have to comment on this.
5. BaFin is fundamentally entitled to the
exchange of information with foreign supervisory
authorities, like SEC, on the basis of written
agreements, so-called memoranda of understanding
(MoU). Regarding potential inquiries from
foreign supervisory authorities, the BaFin can
unfortunately not comment, this would be a
matter of respective authority. For this I ask
for understanding.
Then I wrote
another brief note to BaFin, "in order to prevent
any misunderstanding: your answers refers, as far
as I understand, solely to the financial markets
in Germany and Frankfurt, or not?" The reply from
BaFin:
The answers refer to the German
financial market as a whole and not only on the
Frankfurt Stock Exchange. In terms of the
assessment of foreign financial markets, the
relevant authorities are the competent points of
contact.
In my
inquiries, I mentioned, among other things, a
scientific study by US economist Allen M Poteshman
from the University of Illinois at
Urbana-Champaign, which had been carried out in
2006 regarding the put option trading around 9/11
related to the two airlines involved, United
Airlines and American Airlines. Poteshman came to
this conclusion: "Examination of the option
trading leading up to September 11 reveals that
there was an unusually high level of put buying.
This finding is consistent with informed investors
having traded options in advance of the attacks."
[19]
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