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September 22, 2001
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Financial probes may reveal a new militant

A portrait of a new breed of violent extremist -- rich, financially savvy, global -- emerged this week from a host of investigations into the possibility that those behind the attacks on America tried to turn a grisly profit on their inside knowledge on the markets.

The FBI, the market-regulating Securities and Exchange Commission, the Treasury Department and regulators in Germany, France, Japan and elsewhere are probing reports of unusual trading in stocks and put options of airlines, insurers and banks ahead of the September 11 attacks.

"There is a multi-agency effort under way, under the leadership of the Federal Bureau of Investigation, but my agency is actively investigating reports of possible terrorist activity," said SEC Chairman Harvey Pitt at a Senate Banking Committee hearing on Thursday.

Osama bin Laden, fingered by President George W. Bush as the prime suspect in the attacks, is the heir to a Saudi construction fortune. His wealth is estimated at as much as $300 million.

Experts who study Middle Eastern extremists said bin Laden or his associates may be capable of sophisticated financial speculation. Some doubted, however, whether bin Laden, holed up in the badlands of Afghanistan far from financial capitals, could have pulled off such an audacious speculation.

If the government investigations under way now show that the planners of the attacks cashed in on them by selling stocks short or buying put options, it could be unprecedented.

"If this turns out to be true, I never heard of anything like this before, with terrorist groups being so sophisticated that they're playing the markets," said Bruce Hoffman, a specialist in extremists at the research group Rand Corp.

"It would underscore, in addition to last week's attacks, just how terrorism is evolving into new and different forms, pernicious forms that sometimes aren't directly violent but that undermine our markets."

Pre-attack spike in airline short sales shown

Data released on Friday by the New York Stock Exchange showed short interest in AMR Corp. and UAL Corp. -- parents of the two airlines whose jets were hijacked and crashed into the World Trade Center and the Pentagon -- jumped far more than average in the four weeks ahead of the attacks.

That could be an indicator of suspicious trading, but it could simply reflect the fact that investors had turned negative on airline stocks weeks prior to the attacks, said traders and investment managers who specialize in selling short.

Shorting is a common, but risky way to profit in a bear market. It involves borrowing shares, selling them, buying them back more cheaply later and keeping the difference as profit.

Short selling is closely monitored in America. So traders said anyone interested in cashing in quickly and quietly on knowledge of attack planning would more likely be attracted to the fast-moving options market.

Put options, specifically, are commonly bought by bears hoping to make money on a falling share price. In Chicago and Amsterdam, both home to busy options markets, traders noted unusual trade in AMR and UAL puts before September 11.

Traders in Amsterdam noted unusually active trading in options of Dutch airline KLM prior to the attack.

At a Senate Banking Committee hearing on Thursday, SEC Chairman Pitt and Treasury Secretary Paul O'Neill were asked about the investigations and reports of unusual trade.

"While there's no doubt there was a major shift in the ratios between puts to calls, it's not clear to me yet, from the analysis that's being done, that there's a huge amount of money at risk," the Treasury chief said.

A put option is a contract to sell an underlying security at a fixed price by a specified date. A call is a contract to buy under similar terms.

Some industry analysts said spikes in put volumes for these and other issues could be explained by causes unrelated to the attacks, such as profit warnings or routine market timing.

Japanese traders said a put option strategy to profit from inside knowledge of the attack was unlikely. Rather, they suggested, selling short Japanese index futures would be more tempting to someone looking for a quick, hard-to-trace profit.

Probes under way worldwide

Officials confirmed inquiries into unusual trading activity prior to the attacks were under way in Washington, Chicago, Philadelphia, London, Frankfurt, Milan, Zurich and Tokyo.

On a global conference call on Monday involving officials of the world's top market watchdogs, the possibility of suspicious pre-attack trading was discussed, officials said.

"Some of our members have confirmed that their agencies are looking into certain transactions and general market activity around the time of the tragic events of last week," said Peter Clark, secretary general of the Madrid-based International Organization of Securities Commissions on Friday.

"We just need to wait to see what comes out of those inquiries, if anything," Clark said.

The Attack on America: The Complete Coverage

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