9/11 Commission Questions about Alleged 9/11 Insider Trading

8/14/2019 9/11 Commission Questions about Alleged 9/11 Insider Trading

1/9

Cella OutlineI. Background

A. Joe's BackgroundB. Origin of Investigation:

1. When did investigation start2. Why was it initiated3. What, if any, early indications of unusual trading sparked investigation4. Aware of any other similar investigations, had SEC considered the issue oftrading in advance of terrorism before 9/11

C. Who worked on Investigation Leaders (names andpositions) Types of Staff

D. What Agencies Involved; Division of Responsibility1. SEC2. FBI/DOJ who from FBI was involved

Bill Mackey FBIHQNY Chicago Anyother F.O.s

SDNY/EDNY USAOSEC take lead What wascriteria for referral ofaccount/trader to FBI SEC/FBI breakdown on interviews Anyone at FBIdoing interviews other than NY FO (McRogan, Coleman)1. SROs2. CFTC


2/9

3. Fed4. Any Others5. Explain working of FRG as it relates to trading6. Cooperation among agencies involved in investigation

E. An ything considered for investigation and dropped; anything else that shouldhave been looked at and wasn'tF. Timing: report dated 5/15/02; anything come up after that

II. Scope of InvestigationA. Review list of companies, indices (report at 1)

103 cos.32 funds and indices

B. How w ere they selected; role of FB I; any other agencyC. Time period

1. Why August 20 start date (Rep ort at 1)2. What, if anything, was done re earlier positions established3. SRO Investigation clearly goes earlier (see tabbed examples)

D. Trading Overseas1. SE C investigated US trading of foreign stocks (pick up later)2. what was done re overseas trading outside of SEC jurisdiction

a. how were countries selected (report at 4); why not Spainb. why 8/27c. how did list of 38 evolve

1. What relevant companies, if any, were traded exclusively overseas2. German C entral Bank President, Ernst W elteke com ments in September01 re "irrefutable proof of insider trading."3. Any other countries initially reporting suspicious trading

wha t, specifically wasdone with GermanyE. Size


3/9

how ma ny interviews how m any suspicious transactions identified Report dated 5/15/02; any activity after report

III. ResultsA. A irline Stocks

1. Market Overview (report at 7) general market decline August -September airline industry hit hard HowdidUALorAMRcompare topeers during this period2. Option Trading UA L/AM R (report at 8)a. Press reports of massive put/call imbalance

1. press: reports have it doubled frequently - e.g., 9/18 AP storyb. Highlighted Days

9/6/01 UALPuts; explain trading 1advisor: who was it 9/10/01 AMRputs; explain trading 2/3traceable to 1advisor; what about rest

c. other than two highlighted days, what was done to investigate otheroptions trading in UAL and AMR 8/23 UA L Puts 9/5 and 9/7 UAL puts what resultsfrom his investigation

d. were these traders interviewed; how was cut made about who to interview1. How w as it determined who did interview/SEC/FBI/both

e. were all suspicious options traders interviewedI f. public reports about "uncollected" option profits, e.g., 9/20/01 SFl ^ Chronicle - anything tothis

g. were puts in UAL/AMR consistent with other airlines


4/9

h. Chicago market mak er convinced there was illicit trading Did SEC interview j Conclusions l/i/ ^

Is there option trading on AMR/UAL overseas; what was done to investigateit3 . Other Airlines option trading / ''What about other airlines? What was done to look at trading of puts a 7

W ere puts/call analyzed; any suspicious patterns were anyinterviews conducted

\ anything unexplained anything referred toFRG

a. Short-Selling (R eport at 10)a. Describe investigation of short-selling in UAL/AMR

was there unusual amounts of short-selling press reports: short-selling up 40%forUALand 20%forAMR inmonth before attack; any validity was there m ore shorting of UAL/AMR than other airlines SEC investigation of shorts inUAL/AMR What was NA SD asked to do (Tab F)

Time frame (again shorting preaugust documented) Howmany interviews Results Howmany overseas accounts kicked to FRG(Report at 10)

why DidFBI report back to SEC re investigation ofoverseas accounts Were any of these suspicious Review Flagged accounts inNA SD Report


5/9

a. Other airline stockb. Were airlines, generally, being shorted more than usual during this periodc. What criteria were given to SRO s to report tradesd. What criteria for SEC follow-up how ma ny short-sellers w ere interviewed by SEC

anything unexplained how ma ny referred toFRG(because accounts overseas) what was follow-up fromFRG

a. Press reports of greater short-selling in UAL/AM R than other airlinesf. Overseas trading

A. WTC Tenants1. Press Reports of unusual put volumes in M organ Stanley, Merrill Lynch2. W as that the case3. Exp lain investigation

B. Insurers1. Exp lain review of insurers' stock

a. what role SROsb. what criteriac. what does "atypical price or volume m ovement" m eand. why did you decide this price movem ent in 24 companies meantthere was no unusual tradinge. describe method of choosing insurance companies 9/17 Bloomberg article other two selectionsa. of 8 ins. cos., "with the exception of M unich Re, each of thesecompanies has securities that are traded in US markets and eacheach experienced an increase in volum e and/or decline in price"

what is the exception with M unich re (not traded in US)


6/9

does this mean SEC did no investigation ofMunich re; dida n y U S G where isprimary trading market for each of thesecompanies Swiss Re and Alliance AG primary overseas - anyothers was investigation limited to instruments trading in US what wasdone to investigate overseas trading What did SEC do tomonitor investigation of overseas

trading Who inUSG hadthis responsibility

Describe USinvestigation Walk through report oneach company; flesh outresults ofinvestigation

1. Swiss RE "well know n to thestaff what news items2. XL Capital was there anyStaff review oroversight or was solve investigation of suspicious

activity d one by SR Os anything done todouble-check what guidance wasgiven SROs as towhat constitute "suspcious activity" why theSept 4 start date forNYSE was anyoverseas account suspcicious/any middle-easterner3. AllianzAG any staff involvement whyNY SE Sept 4 start date4. AIG Whywere calls suspicious Why9/4start date


7/9

Explain staff review and investigation5. Citigroup A n y Staff involvement W e r e any put buyers investigated-what about 8/29, 9/6, 9/7 what was "suspicious activity "6. AON any staff involvement what about 9/7 put trading; how wasthat investigated by SROs;7. Marsh & McClennan what %ofputs were covered by SEC interviews explain staff investigation anything left uncovered

A . Coordination of S RO review of Insurers howwere companies identified what guidance/criteria given S ROs "direct" link topersons on FBIlist? Indirect link?

B. Other Industry Groups (Report at 19) Explain what wasdone to support conclusion

Role of SROs Role ofCommission Staff

Interviews of howmany people Any unusual patterns

C. Narrow and Broad-Based Indices and Exchange Traded Funds1. Explain Investigation2. RoleofSROs/Staf f3. A ny thing Unusual


8/9

4. What was done with Foreign ProductsD. Results of Overseas Investigations

How closely didSEC follow foreign investigations Who at SEC met with foreign services W hat countries Howfrequently What w ere results

Were any formal reports received Anyinformal documentary reports (i.e. letters etc.)

If not SEC, who hadresponsibility for liason w ith foreign servicesA. Coordination of Review for Specific Nam es (Report at 5-6)B. T-Bill Trading (Report at 4) trading in 5year treasury notes investigated, according to Press SEC contact w / N Y Fed Anything elseC. Commodities

Gold, etcCTFC RoleKey POC

D. Forward L ooking Surveillance (Report at 4 n.8., p 6) what isbeing done Involvement ofSROs/Private Sector Coordination with FBI/FBI/IC Anytruth topress reports re CIA monitoring of securities transactionsA. Other Issues

1. Elgindy case


9/9

1. Any SEC role2. Any reason to believe Elgindy had advance knowledge

2. SEC role in coordinating industry review of accounts re Control list3. W hy was report no t published

IV. DocumentsHow are docum ents organizedAre the interview m emos organized by categoryIs there an index of interviews identifying who people areLists of initially suspicious traders or accountsIs there a list of accounts referred to FBIIs there a more comprehensive report in existence

ConclusionAny questions unansweredAny suspicious trades in overseas accounts/problems tracking ownershipAnything you felt should have been done and was notAre you confident that your inquiry wou ld have turned up any illicit trading in the U .S.

9/11 Commission Questions about Alleged 9/11 Insider Trading

Documents

Transcript of 9/11 Commission Questions about Alleged 9/11 Insider Trading