Interesting Reading. . .
Trail of suspicious trades widens
Watchdogs probe unusually high volumes
of pre-attack trades on hotel, airlines stocks
By Brock N. Meeks <mailto:brock.meeks@msnbc.com>
MSNBC
WASHINGTON, Sept. 26 - More evidence of suspicious options trading in
the airline and hotel sectors prior to the Sept. 11 attacks has emerged
in a report from an options analysis newsletter. The Chicago Board
Options Exchange is investigating the unusual activity, a CBOE
spokesperson confirmed.
THE SECURITIES and Exchange Commission and New York Stock
Exchange are also investigating the suspicious trading activity,
according to sources familiar with those investigations. The SEC and
NYSE have declined to confirm or deny any such investigations.
"We are vigorously pursuing all credible leads, but at this time
we have drawn no conclusions," the SEC said in a statement last week.
"We are working closely with other federal law enforcement authorities,
as well as the self-regulatory organizations and our foreign regulatory
counterparts, to provide all possible assistance."
Short selling and activity in so-called "put" options on airlines
and hotel stocks soared to "levels we have not seen in years," according
to Phil Erlanger, a former senior technical analyst at Fidelity
Investments.
"Puts" are essentially bets that a particular stock or other
security is going to fall in value.
Erlanger, who now tracks shorts and options via his Web site
www.erlangersqueezeplay.com, has just released new data on option and
short trading prior to the attack, gleaned from the New York Stock
Exchange.
"I saw these charts, and I said, 'This is not normal
activity,'" Erlanger said.
In his technical analysis of the charts created from the options
data, Erlanger said the "footprint for taking advantage of prior
knowledge [of the attacks] is definitely there."
Erlanger has turned his data over to the NYSE and SEC.
"It's up to the agencies to find the shoe that fits the footprint
to see whether this was indeed action taken with prior knowledge,"
Erlanger said.
Although not a sure sign of illegal activity, the activity in put
options is only seen "under extraordinary circumstances," Erlanger said,
such as when the country is at war. To have seen the activity in the
airlines and hotels balloon right before the attack is highly
suspicious, he said. "It doesn't prove that XYZ terrorists or associates
of terrorists or even a country or government of a terrorist did these
trades or someone with prior knowledge did these trades," Erlanger said.
However, he said with a heavy sigh, " it's so out of the ordinary that
it's walking like a duck and quacking like a duck."
For example, United Airlines saw a 40 percent jump in shorts -
some 4.4 million shares - compared with a month earlier. And American
Airlines saw 4,078 put options sold on Sept. 10, compared with an
average of 200. According to Erlanger's calculation, if one person
carried out that transaction on the 4,000 AMR puts, he would have netted
a profit of $4.8 million.
"The potential is for hundreds of millions of dollars (to have
been made here)," Erlanger said of all the combined activity on Sept.
10.
In an apparent act of trader hubris, Erlanger says some investors
were also making huge speculative bets in American Airlines doing "naked
call selling" in which an investor pledges to sell stock he or she
doesn't own. Normally, in selling "calls" the investor actually owns the
underlying security. If a naked call sell goes sour, the losses could be
huge.
But in the wake of American Airlines stock tumbling, making money
on the naked calls "was a layup, it was easy money," Erlanger said.
Although such trades leave a well-documented paper trail, actually
finding those involved or freezing any illegal assets may be moot.
"My suspicion is that if they had a U.S. account I'm sure they took the
cash out and split," said Randall Dodd, of the Washington-based Economic
Strategy Institute and head of its Derivatives Study Center. "These guys
don't appear to be stupid," Dodd said, "and they could have taken their
money out shortly after the exchange re-opened."
Making matters tougher on U.S. investigators would be if the
deals and profits were funneled through a network of offshore accounts
and murky banking franchises whose dealings help lubricate the
impoverished economies of countries known for their status as secretive
tax havens.
"More likely they didn't work in cash and had the funds
transferred to an overseas account that I can only suspect was in a
country that wasn't as cooperative (with U.S. banking investigations),"
Dodd said. "A clear audit trail can quickly disappear" once it has gone
overseas, he said.
Indeed, other countries also have been looking into suspicious
trades but have so far come up empty or have declared nothing out of the
ordinary occurred.
However, Bundesbank President Ernst Welteke said in Liege,
Belgium, on Saturday there were "ever clearer signs that there were
activities on international financial markets which must have been
carried out with the necessary expert knowledge" that the tragic events
in New York and Washington were about to take place.
If the profits are still inside U.S. banks, the SEC can take some
action to at least keep the money from being spent or disappearing into
the world's shadow financial networks of money laundering and coded
accounts.
There is no set of guidelines telling the SEC how or when to
freeze accounts under investigation, said John Hiney, an agency
spokesman. "It depends on the situation," Hiney said. "We can go to
court to freeze an account, and that would be a matter of public
record," he said. "We don't generally talk about investigations,
although there will generally be announcements put out about court
action of one sort or another and will close with the word that the
commission's investigation continues."
Keep the Faith!
M&M Man
