Published On: Wed, Sep 11th, 2013

9/11 Insider Trading Revisited

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Lars Schall (LS) , – There are a couple of unresolved issues when it comes to the terror attacks of September 11, 2001. Two of them: the informed trading on advance knowledge; and the astounding increase in currency in circulation a few weeks prior to 9/11.

Lars Schall

Lars Schall

In March 2012, I’ve published a special investigation for Asia Times Online by taking a critical look at the issue of informed trading prior to the 9/11 terror attacks – see here. I’ve concluded back then that there can be no dispute that speculative trade in put options – where a party bets that a stock will drop abruptly in value – spiked in the days around September 11, 2001 – even if the US Securities and Exchange Commission (SEC) and the 9/11 Commission will not say so. More than a few people must have had advance warning of the terror attacks, and they cashed in to the tune of millions of dollars.

Yet, the SEC concluded that this never happened. So I forwarded four weeks ago for this article the following media inquiry to the press department of the SEC:

Dear Ladies and Gentlemen,

my name is Lars Schall, I am a financial journalist from Germany for Asia Times Online, Hong Kong. I write to you related to the findings of the 2002 Securities and Exchange Commission investigation of informed trading connected to the 9/11 terror attacks. The SEC review – entitled Pre-September 11, 2001 Trading Review” – states,

“We have not developed any evidence that suggests that those who had advance knowledge of the attacks traded on the basis of that information. In every instance where we noticed unusual trading before the attack, we were able to determine, either through speaking directly with those responsible for the trading, or by reviewing trading records, that the trading was consistent with a legitimate trading strategy.”

However, there are three scientific papers that come to very different conclusions:

- Allen M Poteshman: “Unusual Option Market Activity and the Terrorist Attacks of September 11, 2001″, published in The Journal of Business, University of Chicago Press, 2006, Vol 79, Edition 4, page 1703-1726.

- Marc Chesney, Remo Crameri and Loriano Mancini: “Detecting Informed Trading Activities in the Option Markets”, University of Zurich, April 2010, online here. 

- Wing-Keung Wong, Howard E. Thompson und Kweehong Teh: “Was there Abnormal Trading in the S&P 500 Index Options Prior to the September 11 Attacks?”, published at Social Sciences Research Network, April 2010, see here.

Please let me summarize them for you just briefly. 

In the first scientific study which had been carried out in 2006 regarding the put option trading around 9/11 related to the two airlines involved, United Airlines and American Airlines, US economist Allen M Poteshman from the University of Illinois at Urbana-Champaign came to this conclusion: “Examination of the option trading leading up to September 11 reveals that there was an unusually high level of put buying. This finding is consistent with informed investors having traded options in advance of the attacks.”

Another scientific study was conducted by the economists Wong Wing-Keung (Hong Kong Baptist University, HKBU), Kweehong Teh (National University of Singapore, NUS), and Howard E Thompson (University of Wisconsin), whose findings were published in April 2010 under the title “Was there Abnormal Trading in the S&P 500 Index Options Prior to the September 11 Attacks?” The authors looked at the Standard & Poor’s 500 Index (SPX Index Options), in particular with a focus on strategies emanating from a bear market. 

Basically, Wong, Thompson and Teh came to the conclusion “that our findings show that there was a significant abnormal increase in the trading volume in the option market just before the 9-11 attacks in contrast with the absence of abnormal trading volume far before the attacks”.

More specifically, they stated, “Our findings from the out-of-the-money (OTM), at-the-money (ATM) and in-the-money (ITM) SPX index put options and ITM SPX index call options lead us to reject the null hypotheses that there was no abnormal trading in these contracts before September 11th.”

Instead, they found evidence for “abnormal trading volume in OTM, ATM and ITM SPX index put options” for September 2001, and also in “ITM-SPX index call options” for the same month. “In addition, we find that there was evidence of abnormal trading in the September 2001 OTM, ATM and ITM SPX index put options immediately after the 9-11 attacks and before the expiration date. This suggests that owning a put was a valuable investment and those who owned them could sell them for a considerable profit before the expiration date.”

From all of this, they took the position that whilst they couldn’t definitively prove that insiders were active in the market, “our results provide credible circumstantial evidence to support the insider trading claim”.

Moreover, the review of the SEC from 2002 states that the SEC looked at “broad and narrow indices.” However, as Prof Paul Zarembka from the State University of New York, who has specialized in econometrics, pointed out in an interview with me for Asia Times Online related to the study of abnormal trading in the S&P 500 index options prior to the 9/11 attacks:

“What is very interesting about their results is that the underlying reports that were made available to the 9/11 Commission (which we didn’t see until later) say that they could not examine the S&P 500 index options because trading in it is too extensive. Now why that becomes interesting is because the 9/11 Commission report had said that they made a wide-ranging study and they found no evidence of any sort of financial irregularities before 9/11, but also said the S&P 500 index options couldn’t even be investigated – so the commission is kind of contradicting itself. And more than that, when some did investigate the S&P 500 index options, they find out that in fact it did have abnormal trading before 9/11, with high probability.”

See: ‘‘Economists are scared” by Lars Schall, Asia Times Online, April 27, 2012.

Different to the assessment of the SEC review of 2002 is also the scientific work that Chesney, Mancini and Crameri had published in April 2010 at the University of Zurich, “Detecting Informed Trading Activities in the option markets.” In the segment that is dedicated to the terror attacks of 9/11, the three authors come to the conclusion, that there had been notable insider trading shortly before the terrorist attacks on September 11 that was based on prior knowledge.

Without elaborating on the detailed explanation of the mathematical and statistical method, which the scientific trio applied during the examination of the put option transactions on the CBOE for the period between 1996 and 2006, I summarize some of their significant conclusions.

“Companies like American Airlines, United Airlines, Boeing” – the latter company is a contractor of the two airlines as aircraft manufacturer – “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 results by Poteshman (2006) who also reports unusual activities in the option market before the terrorist attacks.”

In the banking sector, Chesney, Crameri and Mancini found five informed trading activities in connection to 9/11. “For example the number of new put options with underlying stock in Bank of America, Citigroup, JP Morgan and Merrill Lynch issued in the days before the terrorist attacks was at an unusually high level. The realized gains from such trading strategies are around $11 million.”

In a new version of their study that was published on September 7, 2011, the authors stuck to their findings from April 2010. They added the emphasis that in no way the profits gained with the put options to which they point could have been achieved due to sheer fortunate coincidence, but that in fact they were based on prior knowledge which had been exploited.

My question: How does the SEC comment on these scientific studies and their findings that contradict the assertion of the SEC (and subsequently that of the 9/11 Commission) that no individuals used foreknowledge to profit from the 9/11 terrorist attacks?

Furthermore, may I ask you for information concerning your response to a Freedom of Information Act request regarding the pre-9/11 put options that was submitted by David Callahan, the executive editor at that time of SmartCEO. The SEC responded: 

“This letter is in response to your request seeking access to and copies of the documentary evidence referred to in footnote 130 of Chapter 5 of the September 11 (9/11) Commission Report. (…) We have been advised that the potentially responsive records have been destroyed.“

My question: Why did the SEC destroy its records on the 9/11 insider trading issue?

Thank you for your attention!

Kind regards,

Lars Schall.

The response of the SEC waswell, to make a short story even shorter: there was none. Thus, the issue remains pretty much unresolved – and should be treated in the field of research as a dramatic gap in the official narrative of the event going forward.

Another field of 9/11 research that deserves more attention is the issue of an astounding increase in currency in circulation a few weeks prior to 9/11.  Connected to this question is also the case of William Bergman, a former senior financial market analyst at the Federal Reserve. He explained to me in an interview that I’ve published in September 2012 what caught his eyes in terms of the M1 money supply increase of the US dollar in July / August 2001:

Specifically, the currency component of M1 caught my eye, because while working on a money laundering project in late 2003 I noticed an extraordinarily rapid increase in the data for July / August 2001.

The currency component of M1 is a measure of currency circulating outside of banks.  … (T)he currency component of M1 is cash – Federal Reserve Notes – circulating outside of banks.  It can go up because people withdraw cash out of their bank accounts.

As of late 2003, when I was working on this stuff at the Fed, from June to August 2001, this measure (in the non-seasonally adjusted data) posted the largest growth rate for a June to August 2001 since World War II.  In the seasonally-adjusted data (data adjusted for seasonal monthly trends), August 2001 was the third fastest growing single month in the 650+ months since World War II, trailing only December 1999 (Y2K, along with other relevant things) and January 1991 (the onset of US military action in Iraq, as well as an important enforcement month in the BCCI money laundering scandal).

It also seems curious that January 2000 turned up as the fourth fastest growing month, and November 1980 as the fifth fastest growing month, since World War II.

L.S.: Did you ring the alarm?

W.B.: Well, not exactly.  But I had also noticed that the Federal Reserve Board had issued a nonroutine supervisory letter to the Reserve Banks on August 2, 2001 urging them to continue to scrutinize suspicious activity reports.  This letter arrived during the surge in currency shipments related to the data above, as well as a spike upward in the number of suspicious activity reports being filed by depository institutions.  Terrorism and its financing were not mentioned specifically in the letter, but they were known to be part of the realm of suspicious activity.

In a draft primer I was writing on money laundering, I asked why the Board issued this letter, and was asked to answer the question.  I called Board staff in a relevant area, asked if it was related to any intelligence warnings of a heightened risk of a terrorist attack, and was planning (in good conscience, not in a “gotcha” sort of way) to talk about the currency shipments and the need to investigate them for relationships to the events of 9/11.

L.S.: What happened to you afterwards?

W.B.: The call was shorter than I expected.  A week later my money laundering assignment was terminated, and I lost my credentials for access to confidential information.  A month later my position in the bank was eliminated.

On August 28, I wrote for this article the following media inquiry to Michelle Smith, a senior spokesperson for the Federal Reserve Board in Washington D.C.:

Dear Ms. Smith,


Click on image to enlarge

May I ask you on behalf of the Federal Reserve for an official explanation, please? May I also ask you why William Bergman was fired as a Federal Reserve economist after he discovered this anomaly?

Lars Schall.

The response of the Federal Reserve in Washington D.C. equaled the Arabic number of zero.

On the same day I showed that graph also to Jack Gutt at the NY Fed’s press office in order to ask him afterwards:

May I ask you on behalf of the Federal Reserve (New York) for an official explanation, please? Apparently, most of this anomaly occurred at the NY Fed.<

The response of NY Fed was zero as well.

So I’ve asked William Bergman, who is now the Director of Research at the “Institute for Truth in Accounting,” the following additional questions for this article:

LS: What is the official explanation for the staggering increase in USD currency in circulation stated by the Fed?

WB: I don’t believe there is any ‘official’ explanation for the surge in currency in circulation in July/August 2001.

LS:  Do you consider it as one possible alternative explanation that covert operations were on their way in the summer of 2001 on the ground in Af/Pak, where cash would rule the place going forward?

WB: Yes, I do.  In light of the history of the actual use of currency in covert operations (such as those in Iran in 1953), evidence that currency was indeed used in operations in Central Asia soon after 9/11, a number of research sources suggesting operations like those were already possibly underway before 9/11, other research indicating US negotiations over energy issues in Afghanistan were breaking down in August 2001 (including reported military threats from the US), and recent statements by a Senate leader that raised questions whether cash support for Afghanistan president Hamid Karzai began before he became president (just a couple months or so after 9/11) — the possibility that cash was being used in military and/or covert operations already underway in Central Asia seems possible, and worth investigating.

LS:  What could be other explanations?

WB: Other explanations could certainly include a blooming banking crisis in Argentina in 2001. But Argentina wasn’t just in a banking crisis, it was also in the middle of a political and money laundering crisis with possible links to the questions at hand. Accelerated shipments of currency to Argentina could have included shipments relating to parties of interest in an honest investigation of 9/11, and those Argentina shipments were certainly not all of the extraordinary $5+ billion increase in currency in circulation in July/August 2001.

Another possible explanation relates to recent developments in a FOIA lawsuit in Florida, where the Broward Bulldog has sought records from the FBI relating to evidence of alleged 9/11 hijacker visits and other connections to a family that fled the US in late August 2001. Senator Robert Graham’s recent declaration in that lawsuit raises some rather harrowing questions.  See here.

This case is valuable of its own accord, and also highlights a broader issue. Anyone with advance knowlege of the events of 9/11 could well have been concerned with not only exiting the US, but taking money with them as well.  In a declared national emergency or time of war, assets can be frozen and seized in banks and other financial institutions.  In fact, we did take some those actions after 9/11. So there is an incentive to take assets out of places they are at risk of seizure, if you know something is coming. Following the money on that score could have helped us identify parties with advance knowledge of, if not responsibility for, the events of 9/11. But we don’t have evidence that any such investigation has taken place, either with respect to flight capital like this, or for any covert operation use of currency in Central Asia in July/August 2001.

Lars Schall via Lars Schall 

Related articles:

Deutsche Bank Alex Brown and 9/11 Insider Trading – A Final Word from Lars Schall

Insider trading 9/11 … the facts laid bare

Terror Trading 9/11

About the Author

- Lars Schall, who was born in Germany, in 1974, has among other, studied journalism at the University of Dortmund and in Knoxville, Tennessee. Lars Schall is a freelance Finance Journalist whose focus is on energy, precious metals, monetary systems and geopolitics. Lars Schall is contributing to several internationally renown media, including Asia Times Online, and is a frequent guest on Russia Today and other TV channels. Lars Schall is also the author of the book "Mordanschlag 9/11 Lars Schall is internationally renown for his knife sharp, investigative journalism and his interviews with some of todays pundits, policymakers and scholars, and for not shying away from picking up some of our times most controversial and pertinent issues. Lars Schall entertains his own website at .

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