Trading in Plain Sight

The following is an excellent excerpt from the book “THE DEATH OF MONEY: The Coming Collapse of the International Monetary System” by James Rickards from Chapter 1 “Prophesy” on page 17 and I quote:
“One of our biggest fears is that something happens today, and
when we do the autopsy we find that two weeks ago we had it,
[but] we didn’t know because it was buried in something else
that wasn’t getting processed.”
B. “Buzzy” Krongard
CIA executive director
September 1, 2001
“The unconditional evidence supports the proposition that there
was unusual trading in the option markets leading up to Septem-
ber 11, which is considered with the terrorists or their associates.”
Allen M. Poteshman
University of Illinois at Urbana-Champaign
“Never believe anything until it had been officially denied.”
Claud Cockburn
British journalist

Trading in Plain Sight – “No one trades alone.” An axiom of financial markets, this truism means that every trade leaves transaction records there to be seen. If one knows where to look and how to examine the history and data, much can be learned not only about quotidian sales of stock by the obvious players, large and small, but about more troubling truths and trends. The market evidence surrounding 9/11—most of which is little understood by the public—is a case in point.
The secure meeting rooms at the CIA’s Langley headquarters—windowless, quiet, and cramped—are called “vaults” by those who use them. On September 26, 2003, John Mulheren and I were seated side by side in a fourth-floor vault in the headquarters complex. Mulheren was one of the most legendary stock traders in Wall Street history. I was responsible for modeling terrorist trading for the CIA, part of a broad inquiry into stock trading on advance knowledge of the 9/11 attacks.
I looked in his eyes and asked if he believed there was insider trading in American Airlines stock immediately prior to 9/11. His answer was chilling: “It was the most blatant case of insider trading I’ve ever seen.”
Mulheren started his stock trading career in the early 1970s and, at age twenty-five, became one of the youngest managing directors ever appointed at Merrill Lynch. He was found guilty of insider trading in 1990 as part of the trading scandals of the1980s, but the verdict was overturned on appeal. His conviction was based on testimony provided by Ivan Boesky, himself a notorious insider trader. During the case, Mulheren had been apprehended by police at his Rumson, New Jersey, estate as he set out with a loaded assault rifle in his car to kill Boesky in broad daylight.
Mulheren was expert in options trading and the mathematical connections between the prices of options and the prices of the underlying stocks on which the options were written. He was also a seasoned trader in takeover stocks and knew that deal information was often leaked in advance, an open invitation to insider trading. No one knew more about the linkage between insider trading and telltale price signals than Mulheren.
When we met at Langley, Mulheren was CEO of Bear Wagner, one of seven New York Stock Exchange specialist firms at the time. Recently, specialist firms have faded in importance, but on 9/11 they were the most important link between buyers and sellers. Their job was to make a market and stabilize prices. Specialists used options markets to lay off the risk they took in their market making. They were a crucial link between New York stock trading and Chicago options trading.
Mulheren’s firm was the designated market maker in American Airlines stock at the time of the 9/11 attacks. When the planes hit the twin towers, Mulheren saw the smoke and flames from his office near the World Trade Center and understood immediately what had happened. While others speculated about a “small plane, off-course,” Mulheren furiously sold S&P 500 futures. In the ninety minutes between the time of the attack and the time the futures exchange closed, Mulheren made $7 million shorting stocks. He later donated all the gains to charity.
Mulheren was an eyewitness: he watched both the unfolding of the 9/11 attack and the insider trading that preceded it. His presence at Langley in 2003 was part of a CIA project whose roots reached back to a time before the attack itself.
The Terror Trade – September 5, 2001, was the day Osama bin Laden learned that the attacks on New York and Washington would take place on 9/11. The countdown to terror had begun. There were four trading days left before the streets around the New York Stock Exchange would be choked with death and debris. Terrorists traders with inside information on the attack had only those few days to execute strategies to profit from the terror. Insider trading on advance knowledge of the 9/11 plot was in full swing by September 6.
Bin Laden was financially sophisticated, having been raised in one of the wealthiest families in Saudi Arabia. The other leaders of Al Qaeda, including the 9/11 hijackers, were not drawn from the ranks of the ignorant and impoverished; they were doctors and engineers. Many lived in developed countries such as Germany and the United States. Al Qaeda was financially backed by wealthy Saudis who traded stocks on a regular basis.
Al Qaeda’s familiarity with the workings of the New York Stock Exchange is well known. In an interview with a Pakistani journalist just weeks after the 9/11 attacks, Bin Laden made the following comments, which show how closely he drew the connection between terror and trading:
“I say the events that happened on Tuesday 11th September on New York and Washington, that is truly a great event in all measures. . . . And if the fall of the towers .. . . was an event that was huge, then consider the events that followed it. . . let us talk about the economic claims which are still continuing. . . . The losses on the Wall Street market reached 16%. They said that this number is a record, which has never happened since the opening of the market more than 230 years ago, , , , The gross amount that is traded in that market reaches 4 trillion dollars. So if we multiply 16% with $4 trillion to find out the loss that affected the stocks, it reaches $640 billion of losses from stocks, with Allah’s grace.”
American Airlines and United Airlines, the operators of the four flights that were hijacked on 9/11, are public companies whose stock is traded on the New York Stock Exchange. In 2001 American Airlines traded with the ticker symbol AMR, and United Airlines with the ticker UAL.
An investigator looking for evidence of insider trading usually starts with the options markets, closely linked to the stock market. Decades of insider trading cases have shown that options are the insider trader’s tool of choice. The reason is obvious; options offer much greater leverage for the same amount of cash than regular stock trading. What makes sense for Wall Street crooks also makes sense for terrorists. When one is betting on a sure thing, leverage amplifies the expected profits, and the terrorists were betting on a sure thing—the panic that would follow their attack.
While the operational details of the 9/11 terror attacks were known in advance to only a small cadre of operatives, the coming of an attack on September 11, 2001, was known to a larger circle. This group included immediate associates of the hijackers, housemates, and financial backers, as well as family and friends. Those who learned of the coming attacks from the terrorists told others, and the information spread through a social network in much the same way a video goes viral.
Advance knowledge of an attack communicated in social networks does not help intelligence agencies unless the messages are intercepted. Interception presents challenges both in directing collection resources at the right channels and in separating signals from noise. But at least one channel was blinking red before 9/11, telling the world that disastrous events involving airlines were imminent. That channel was the pinnacle of the U.S. financial establishment—the New York Stock Exchange.
As the terror clock ticked away, market signals rolled in like a tsunami. A normal ratio of bets that a stock will fall to bets it will rise is 1 to 1. On September 6 and 7, option bets that United Airlines stock would fall outnumbered bets it would rise by 12 to1. Exchanges were closed on September 8 and 9 for the weekend. The last trading session before the attack was September 10, and that day option bets that American Airlines stock would fall outnumbered bets it would rise by 6 to 1. On September 11, 2001, United Airlines and American Airlines flights struck the World Trade Center and Pentagon. The first trading day after the attacks, United Airlines stock fell 43 percent and American Airlines stock fell 40 percent from where they had last closed. Thousands of Americans were dead. The options traders had made millions.
One-sided trading, involving more bearish than bullish bets of the kind seen just prior to 9/11, Seasoned traders and sophisticated computer programs recognize this pattern for what it is—insider trading in advance of adverse news. Only the terrorists themselves and their social network knew that the news would be the most deadly terrorist attack in U.S. history.
The trading records are not the only evidence of a terrorist connection to insider trading in advance of the attacks. Yet notwithstanding such evidence, the official 9/11 Commission concluded:
“Exhaustive investigations by the Securities and Exchange Commission, FBI, and other agencies have uncovered no evidence that anyone with advance knowledge of the attacks profited through securities transactions.”
This language used in the 9/11 Commission Report is a lawyer’s dodge. Saying that agencies uncovered no evidence does not mean there is no evidence, merely that they failed to find it. The conclusion that no one profited does not mean that transactions did not take place, merely that the profits could not be ascertained. Perhaps the perpetrators failed to collect their winnings, like a bank robber who drops a satchel of stolen cash in flight. The inside terrorist traders may not have known the exchange would be closed for days after the attack, making it impossible to settle trades and collect winnings.
Despite the official denial, proof of the terrorist trading connections is found through a deeper dive into the world of forensics and the phenomenon of signal amplification. The unusual options trading in advance of 9/11 has been closely studied by academics. The literature, most of it published after the 9/11 Commission completed its work, is emphatically of the view that the pre-9/11 options trading was based on inside information.
The leading academic study of terrorist insider trading connected to 9/11 was done over four years, from 2002 to 2006, by Allen M. Poteshman, then at the University of Urbana-Champaign. His conclusions were published by the University of Chicago in 2006.
These conclusions were based on strong statistical techniques. This is like using DNA to prove a crime when there was no eyewitness. In murder cases, prosecutors compare a defendant’s DNA to samples found at the crime scene. A DNA match might implicate a defendant in error, but the chance is so slight, so exceedingly remote, that juries routinely convict. Certain statistical correlations are so strong that the obvious conclusion must be drawn despite a microscopic chance of error.
Academics like Poteshman take large sets of data and establish the normal behavior of stocks, called the baseline. Researchers then compare actual trading in a target period to the baseline to see if the target period represents normal or extreme activity. Explanatory variables are tested to account for extreme activity. These techniques have proved reliable in many investigatory and enforcement contexts. During the dot-com bubble, for example, they were used to uncover widespread illegal backdating of options by technology companies.
Poteshman’s data for the purposes of establishing a baseline included a daily record of options trades on all stocks in the S&P Index from 1990 through September 20, 2001, shortly after the 9/11 attacks. He focused on several relevant ratios before turning to the one most likely to be used by terrorists—the simple purchase of put options on AMR and UAL. A put option on a stock is a bet that the stock’s price will fall.
He arranged the data in the decimal brackets from 0.0 to 1.0, with 0.0 representing extremely low activity in put options and 1.0 representing extremely high activity. He discovered that in the four trading days prior to 9/11, the maximum daily value for either hijacked airline was 0.99 and the maximum value over the entire four-day window was 0.96.In the absence of any news that would explain such an extreme skew, the inescapable conclusion is that this activity represents insider trading. Poteshman writes:
“There is evidence of unusual option market activity in the days leading up to September 11 that is a consistent with investors trading on advance knowledge of the attacks.”
Another leading study, conducted by the Swiss Finance Institute, reached the same conclusion. This study covered the period 1996 to 2009 and analyzed over 9.6 million options trades in thirty-one selected companies, including American Airlines. With respect to 9/11, the study concluded:
“Companies like American Airlines, United Airlines, Boeing and to a lesser extent Delta Air Lines and KLM seem to have been targets for informed trading activities in the period leading up to the attacks. The number of new put options issued during that period is statistically high and the total gains. . . realized by exercising these options amount to more than $16 million. These findings support the evidence in Poteshman (2006) who also documents unusual activities in the option market before the terrorist attacks.”
The 9/11 Commission was aware of the trading records used by subsequent scholars, and it was familiar with media reports that insider trading by terrorists had taken place. Yet the 9/11 Commission denied any connection between the options trading and terrorists. Its failure to conclude that terrorist insider trading took place is due to its failure to understand signal amplification.”

“The next financial collapse will resemble nothing in history. . . . Deciding upon the best course to follow will require comprehending a minefield of risks, while poised at a crossroads, pondering the death of the dollar.”
“The international monetary system has collapsed three times in the past hundred years, in 1914, 1939, and 1971. Each collapse was followed by a period of tumult: war, civil unrest, or significant damage to the stability of the global economy. Now James Rickards, the acclaimed author of Currency Wars, shows why another collapse is rapidly approaching—and why this time, nothing less than the institution of money itself is at risk.
The American dollar has been the global reserve currency since the end of the Second World War. If the dollar fails, the entire international monetary system will fail with it. No other currency has the deep, liquid pools of assets needed to do the job.”

Economic prudence is something the big investment banks in Greece NEVER PRACTICED.

LaVern Isely, Progressive, Overtaxed, Independent Middle Class Taxpayer and Public Citizen and AARP Members


About tim074

I'm a retired dairy farmer that was a member of the National Farmer's Organization (NFO). Before going farming, I spent 4 years in the United States Air Force where I saved up enough money to get my down payment to go farming. I also enjoy writing and reading biographies and I write about myself as well as articles and excerpts I find interesting. I'm specifically interested in finances, particularly in the banking industry because if it wasn't for help from my local Community Bank, I never could have started farming which I was successful at. So, I'm real interested in the Small Business Administration and I know they are the ones creating jobs. I have been a member of Common Cause and am now a member of Public Citizen as well as AARP. I have, in the past, written over 150 articles on the Obama Blog ( and I'd like to tie these two sites together. I'm also on Twitter, MySpace and Facebook and find these outlets terrifically interesting particularly what many of these people did concerning the uprising in the Arab world. I believe this is a smaller world than we think it is and my goal is to try to bring people together to live in peace because management needs labor like labor needs management. Up to now, that hasn't been so easy to find.
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s