Bank of America among 38 stocks in SEC's attack probe

Bloomberg News

Wednesday, October 3, 2001

WASHINGTON - The U.S. Securities and Exchange Commission is investigating whether shares of Bank of America Corp., American Express Co., Lockheed Martin Corp. and 35 other companies were the subject of insider trading before the terrorist attacks on New York and Washington.

Companies being probed by the SEC were listed on the Web site of the Investment Dealers Association of Canada, that country's securities industry group. The note asked brokerages to cooperate with the investigation.

The SEC, the Federal Bureau of Investigation, U.S. Treasury agents and authorities in Europe and Asia are combing brokerage, market and banking records for bigger-than-normal trading or money transfers that might expose who was responsible for assaults that killed thousands of people.

The Canadian group's notice asked brokers to review trading of the 38 stocks ``with a view of determining any unusual trading patterns, particularly any `negative' trading'' such as buying put options that rise in value as a company's stock price falls. The SEC is seeking records from Aug. 27 to Sept. 11, the two-page document said.

U.S. markets tumbled after terrorists flew hijacked passenger jets into the World Trade Center's twin towers in New York and the Pentagon, across the Potomac River from Washington. The Dow Jones Industrial Average fell 14.3 percent during the first week of trading after the attacks. The Standard and Poor's 500 Index sank 11.6 percent, and the Nasdaq Composite Index dropped 16 percent.

``We are still carrying on investigations into trading around Sept. 11,'' said Karin Loudon, a spokeswoman for the Financial Services Authority, the U.K. markets regulator. ``We haven't discovered anything yet.''

Charlotte Judet, a spokeswoman for Paris-based Commission des Operations de Bourse, said French investigators continue to review unusual trading in some stocks before the Sept. 11 assault. She declined to be more specific.

Option Volume Surges

A Bank of America option that would profit if the No. 3 U.S. bank's stock fell below $60 a share had more than 5,900 contracts traded on the Thursday and Friday before the Sept. 11 assaults, almost five times the previous average trading, according to Bloomberg data. The bank's shares fell 11.5 percent to $51 in the first week after trading resumed on Sept. 17.

While investigators have focused on short selling and trading in put options, some defense contractors on the SEC's list, including Raytheon Co., had higher volume in options that profit from rising stocks.

A Raytheon option that makes money if shares are more than $25 each had 232 options contracts traded on the day before the attacks, almost six times the total number of trades that had occurred before that day. A contract represents options on 100 shares. Raytheon shares soared almost 37 percent to $34.04 during the first week of post-attack U.S. trading.

No Evidence Yet

Officials at the SEC and in Europe repeatedly have said they hadn't yet turned up solid evidence of terrorist trading, and the trading surges may simply be coincidental. SEC Chairman Harvey Pitt and Treasury Secretary Paul O'Neill have said they continue to take the investigation seriously.

The SEC's list of companies, which was reported earlier today by Associated Press, was concentrated in airline, brokerage, insurance, banking and defense stocks.

Delta Airlines Inc., Northwest Airlines Corp. and Southwest Airlines Co. were among seven airlines listed, joining AMR Corp. and UAL Corp., already known to be a focus of the probe. Trading of bearish options in AMR Corp. and UAL Corp. surged in the days before terrorists hijacked and crashed two American Airlines and two United Airlines jets.

Trading in Boeing Co., Lockheed Martin, and Raytheon is being examined, the notice said. Market activity in Cigna Corp., MetLife Inc., American International Group Inc. and other insurers also is being reviewed.

Brokerage Options Reviewed

Lehman Brothers Holdings Inc. and American Express joined brokerage and financial services companies on the list. It already has been reported that securities of Morgan Stanley Dean Witter & Co., Bear Stearns Cos. and Citigroup Inc. were being scrutinized.

Morgan Stanley was the World Trade Center's biggest tenant, and Citigroup has estimated that its Travelers insurance unit may pay $500 million in claims from the terrorist assaults.

Market makers handling trading in AMR and UAL options have said they noticed suspicious or peculiar trading in those securities in the days before the terrorist attacks.

Trading in some AMR and UAL put options surged to as much as 285 times the previous average volume during the days before terrorists flew hijacked United and American jets into the World Trade Center's twin towers and the Pentagon.

Copyright 2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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