Probes into 'suspicious' trading - 09/24/2001

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Probes into 'suspicious' trading 09/24/2001

 

 

 

 

Probes into 'suspicious' trading

 

By CNN's Tom Bogdanowicz and Brooks Jackson

 

09/24/2001

 

 

 

LONDON, England (CNN) --European and U.S. regulators are on the hunt for

anyone who might have manipulated financial markets ahead of the terror

attack in the hope of profiting from it.

 

Central banks and supervisory bodies in New York and across Europe are

conducting investigations into what one European central banker says are

ever-clearer signs of market manipulation.

 

Germany's central bank governor, Ernst Welteke, says there were signs of

suspicious movements in oil and gold prices before the attack.

Investigators

in Europe are also looking at trading in insurance and airline stocks.

 

There are strong suspicions that British markets may have been used for

transactions, says Belgian Finance Minister Didier Reynders.

Sources in London say no evidence has turned up yet, although an

investigation at all exchanges is being conducted.

 

French Finance Minister Laurent Fabius says there are clues, but not yet

proof.

 

One problem is that some of the more complex market transactions, like

short-selling of shares, are not directly visible to regulators. But that

doesn't mean there isn't a trail. Even shell companies can be pried apart.

 

" Normally, shell companies, special banks, jurisdictional problems are all

set up to make a paper trail more difficult for regulators to follow. The

nature of this atrocity, however, is such that there are signs that people

who don't usually cooperate will cooperate this time, " says Jeffrey

Robinson, author of " The Laundrymen. "

 

Even though market manipulation may have been covert, sources close to

regulators say they do have the means to pursue the any paper trail of

unusual market activity. Cooperation among European central banks and

supervisory bodies may prove a key element in the investigation.

 

" You know that some national central banks are involved in the supervisory

body for the markets. So it is important to have a discussion with the

governors about that. And we try to have two reports, from the commission

and from the supervisory committee, for the 16th of October, " says

Reynders.

 

In New York, investigators are looking into the possibility that

terrorists

might have used short-selling to bet against the stocks of the very

airlines

they planned to hijack.

 

Short-selling can yield big profits when stocks go down in value.

Those who

practice it sell borrowed stock at today's price, hoping to buy it back

tomorrow at a lower price -- pocketing the difference as a profit.

 

Here's how it works: The stock of UAL Corporation -- United's parent

-- has

plunged from over $30 a share on September 10 to just over $17 at last

Friday's close. A person who sold short 1,000 shares of UAL then, and

closed

out the trade Friday, would have made a profit of $13,720, minus broker's

commissions.

 

Late last week, the New York Stock Exchange reported that the parent

companies of both American Airlines and United Airlines experienced sharp

increases in short-selling of their stocks in the month that ended the day

before the attacks.

 

Between August 10 and September 10, the NYSE says short sales of UAL Corp.

increased 40 percent, American parent AMR Corp increased 20 percent, and

aircraft manufacturer Boeing Corp. increased 37 percent.

 

Short-sellers with advance knowledge of the attack could have made

millions.

 

None of this proves anything. Big increases in short-selling happen

all the

time. And airlines were in financial trouble even before the attacks,

which

many speculators may have seen as good financial reason to short their

stock.

 

But federal investigators have said publicly they are looking at reports

that the terrorists may have tried to profit from exploiting securities

markets.

 

" We are vigorously pursuing all credible leads but, at this time, we have

drawn no conclusions, " said Stephen M. Cutler, acting director of

enforcement for the U.S. Securities and Exchange Commission.

 

" Speculation about what we have concluded or not concluded, as well as

what

we are or aren't looking at, is just that -- speculation -- and it has

absolutely no foundation in fact. "

 

 

Find this article at:

http://archives.cnn.com/2001/WORLD/europe/09/24/gen.europe.shortselling