10/18/2001 - Updated 10:08 PM ET Suspiciously timed bets against airlines expire today

By Greg Farrell, USA TODAY

The Securities and Exchange Commission is stepping up its investigation of suspicious trading activity related to the Sept. 11 terrorist attacks.

Thursday, the SEC distributed a watch list to all U.S. brokerage houses consisting of names supplied by the FBI and other law enforcement groups. It wants securities dealers to determine if they've done business with any individuals or groups on the list.

The "control list" highlights the difficulty that the SEC has been having in its probe to find a possible link between known accomplices of Osama bin Laden and investors who profited last month by shorting the stocks of airlines, hotels and financial services companies. So far, no connection has been established.

Although the SEC is investigating unusual activity in a basket of 38 stocks, the large number of "puts" purchased in American and United airlines just days before the attacks, which crashed American and United jets, has drawn the most attention. A put is essentially a bet that an underlying stock's price will fall.

But while the puts appeared suspicious, they haven't yielded any conclusive evidence of a plot. Today, those puts expire. Here's what investigators know about them:

• An institutional investor purchased 2,000 United puts on Sept. 6 through Deutsche Bank Alex. Brown. The puts remain open, suggesting that they were used to hedge an underlying stock position.

• The puts in American Airlines were bought on the afternoon of Sept. 10 through National Financial Services, a division of Fidelity. Of 1,535 puts traded that day, 453 remain open.

Prior to September, brokers in Chicago and New York noticed other unusual put trading. On Aug. 6, an investor bought 810 February puts in United stock. On July 12 and Aug. 3, investors bought more than 1,000 February puts in American. The February puts represented a bet that the stock of the two airlines would dip below $30 per share by the third Friday of February 2002.

The Sept. 11 attacks knocked the stocks from about $30 to $18 when the market reopened Sept. 17.

The October puts in both stocks, purchased for just over $500,000, were suddenly worth $4 million.

Although institutional buyers may have decided that airline stocks were headed down, Chicago options traders are skeptical: If you're going to short the sector, you buy puts in the big three airlines, American, United and Delta. But there was no comparable activity in Delta stock.

On the options exchange, where brokers are super-sensitive to any suggestion of insider trading, skepticism abounds.

"It smells. It does not make sense to me," says one Chicago options trader.

-- Anonymous, October 19, 2001