Terrorists could have taken money and rungreenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread
Terrorists could have taken money and run
By Simon English in New York and Andrew Cave in London (Filed: 26/09/2001)
TERRORISTS may have already collected gains from short selling shares ahead of the attacks in New York and tracking the paper trail could prove impossible, a former chairman of America's top financial watchdog warned yesterday.
David Ruder, Securities and Exchange Commission chairman from 1987 to 1989, said attempts by banks to freeze terrorist money may have come too late. He said: "They could have gotten away with it.
"If the transactions occurred in the US, the SEC has the means to obtain from brokers the names of the parties engaged in the short selling. If the transaction was done overseas, the SEC has problems." Although regulators are linking forces to probe the trades, many foreign authorities fall outside the scope of such agreements.
"If they are sophisticated enough to do what they did, they are sophisticated enough to set up dummy corporations. It is hard to find out who the real people are in those cases," said Mr Ruder, who led the SEC through the 1987 stock market crash and is professor of law at the Northwestern University in Chicago.
US Treasury Secretary Paul O'Neill, confirming the government probe into short selling, admitted that the use of financial ruses would make detecting any fraud complex. "You've got to go through 19 veils before you get to a real source," he said.
Short selling allows investors to bet that stocks will fall by borrowing and selling shares in the hope of buying back at a lower price.
Chicago Board Options Exchange data show 1,575 put options purchased in United Airlines' parent UAL on September 6, compared with 390 on an average day. Investors bought 2,258 put options in American Airlines' owner AMR, compared with 220 typically per day.
It is not known how much was bet but one analysis says the short sellers could have made 30 times what they invested, given the extent of the plunge in prices.
Mr Ruder said: "The number of dollars involved may be greater than we imagine. It might not have been the perpetrators of the attack that did the short-selling, just somebody who knew what was going to happen. If I were still chairman of the SEC, I would be working as hard as I can to find out who made the trades."
In London, Financial Services Authority chairman Sir Howard Davies said: "The specific trails we have already followed have not led us to any discovery of improper activity. However, we have quite a way to go.
He said the FSA investigated allegations of insider dealing in airline and insurance stocks and oil and found trading volumes "high but not uncommonly so". There were "a few instances" where stocks were traded in "unusually sizeable amounts" but this could have been due to funds positioning themselves for an economic downturn.
Explanations had been obtained for a number of cases, such as a "sizeable put option" in British Airways, which turned out to have been taken on behalf of another airline.
Sir Howard also said there had been "some unattractive examples of aggressive short-selling in recent weeks" and the FSA will use new powers it gains in December to act "if we find specific examples of abusive and not just aggressive practice in future".
It is understood he was talking about recent sharp falls in share prices of companies such as Marconi rather than short selling before the attacks.
-- Martin Thompson (firstname.lastname@example.org), September 25, 2001
Four times the number of put purchases in United Airlines and ten times the typical number of puts in American Airlines, prior to the Trade Center crack-ups? Case open, case closed. The terrorists came off with a windfall of profits with which to finance future terrorist activities.
-- JackW (email@example.com), September 26, 2001.