U.S. and European officials are investigating suspicious market trading that preceded the 11 September terrorist attacks on the United States. RFE/RL correspondent Ron Synovitz examines the developments together with the ongoing volatility of financial markets around the world.
Prague, 24 September 2001 (RFE/RL) -- Authorities in the United States and Europe are investigating the possibility that those who planned the recent terrorist attacks in the United States may have made enormous profits from the international financial markets.
The investigation in the United States is being led by the FBI but also involves market regulators of the Securities and Exchange Commission (SEC) and the Treasury Department.
SEC Chairman Harvey Pitt announced the multi-agency effort at a 20 September hearing of the Senate Banking Committee. U.S. Treasury Secretary Paul O'Neill told the same committee massive amounts of money may have been involved.
More recently, there were indications that the European Union and Germany's Bundesbank are taking part in similar probes.
Bundesbank president Ernst Welteke says there are what he calls "ever-clearer signs" that those who planned the U.S. attacks also had a great degree of knowledge about stocks and commodities, and that they made huge financial profits from the havoc they brought to international financial markets.
Bundesbank spokesman Wolf-Ruediger Bengs explained Welteke's remarks to RFE/RL today:
"There are clear indications that there must have been activities on international financial markets. These transactions probably were done with the relevant knowledge and expert inside knowledge. So, in other words, you need expertise for that to know what instruments are available. But it will be extremely difficult to find proof [that those involved had advance knowledge of the 11 September terrorist attacks]."
Bengs explained that sophisticated financial instruments had to be purchased beforehand which would allow investors with advance knowledge of the attacks to make money from falling share prices in the days after the attacks took place:
"There could be several avenues for doing that. One would be 'short selling' of shares. The other would be to purchase 'put options' on particular shares or particular index contracts. [Financial authorities and criminal authorities also are investigating] whether there have been particular dealings in oil and gold markets."
Bengs says there was a significant increase in the number of deals involving both "short selling" and "put options" in the days just before the U.S. attacks:
"There have been transactions taking place in particular segments of the markets in advance of the 11th of September. They are, for example, in airline shares. For example, put options. Not so much in Germany, if at all. In Germany there are, so far, no particular indications of that."
In "short selling" an investor sells shares that technically he doesn't own. He has only borrowed the shares, and agrees to buy back the same number of shares at a later date -- which he then returns to the original owner.
Short investors are gambling the share price will fall. If the share price does fall, the investor profits from the difference between his selling price and his buyback price. But if the share price rises, the short investor loses that price difference.
Data released on 21 September by the New York Stock Exchange shows that during the four weeks before the terrorist attacks, there was far greater activity than normal in short contracts involving the parent companies of the two airlines that were hijacked.
A "put option" is an agreement that allows an owner of specific shares or commodities to sell them at a future date and at a prearranged price in the hope that the price will fall.
Traders in Chicago and Amsterdam, which both have busy options markets, noted that there were unusual levels of put options just before 11 September that involved the two hijacked airlines.
The share prices of airlines and insurance companies have been among the hardest hit on Wall Street following the attack.
Terrorist investors also may have profited by investing in oil and gold just before the attacks. Both oil and gold are traditional safe havens for investors in times of war or global crisis -- and the price for such commodities can rise dramatically when a crisis causes investors to rush and buy them in order to lessen their risks from holding shares whose prices are falling.
In this case, investors with advance knowledge of the terrorist attacks would simply sell off their gold and oil holdings after a significant price rise. Bengs told RFE/RL today:
"On oil, I don't know. We haven't found any particular clues. But on gold, there have been purchases -- not in Germany. Outside of Germany. But they could have been made by coincidence on that day, [and not necessarily made by investors with links to the terrorists."
Share price indices in the U.S. and Europe have tumbled dramatically since the terrorist attacks. Shares regained some of those losses today in early trading, but investors say prices are expected to remain volatile.
John Higgins, the chief economist at Nomura investment bank in London, says that even without the terrorist attacks, economic fundamentals in the U.S. were weak:
"The big unknown now is really to what extent have the terrorist attacks further eroded confidence in the consumer sector above and beyond the knock that was being imparted by a softer labor market and a weaker economy generally. The market will be paying a great deal of attention to see just how badly confidence has been shaken."
Higgins told RFE/RL that volatility on the stock markets since the attack has left traders uncertain, and that it probably is too early to speak of a sustained recovery:
"The psychology now is very much risk aversion. People are wanting to see how military events play out. Plunging stock markets everywhere are not going to do a lot to bolster sentiment in Europe and elsewhere, even if their origin is in the United States."
Ulrich Beckham, a currency and bond expert for Deutsche Bank, also said he does not expect a turnaround in the global economy until around the end of this year at the earliest. Ulrich said he does not expect stronger economic growth until the second quarter of next year.
"We have seen lots of volatility already -- the markets are trading down heavily. And I guess, to a certain extent, this is justified because we will see that the economies will go down toward the end of the year. [That's because] spending plans are postponed by consumers and also investment plans are being postponed by companies." Management consultants for international businesses are also warning that the doubt and fear sown by the terrorist attacks are likely to create a new, harsher business environment.