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Whether advance knowledge of U.S. attacks was used for profit

NEW YORK, SEPT. 30. After almost two weeks of investigation, financial regulators around the world have found no hard evidence that people with advance knowledge of the terrorist attacks in New York and Washington used that information to profit in the international securities markets. And a number of officials are beginning to express doubt that such a plan existed.

While the investigations are continuing and additional evidence is still to be reviewed, many leads that initially seemed to indicate a conspiracy to profit from the terrorist attacks have been found to have less sinister explanations. For example, regulators have already traced some of the most suspicious trades in London - involving what appeared to be huge bets that the stocks of certain large airlines would decline - to the trading accounts of a smaller airline. That airline, which officials declined to identify, was said to have made the trades as part of a common hedging strategy intended to reduce the financial impact of a downturn in the industry.

A law enforcement official, speaking on condition of anonymity, also expressed doubt that a trading conspiracy existed. The official said it was unlikely that a terrorist group that had worked for months, if not years, to orchestrate its attack would be reckless enough to create even a subtle signal of its plans by engaging in the high-profile trading of public securities. Regulatory authorities are also working with the Federal Bureau of Investigation and other law enforcement and intelligence agencies in an attempt to track down financial and brokerage accounts tied to the suspected hijackers of the planes that crashed into the World Trade Center, the Pentagon and in Pennsylvania, as well as to their associates.

Someone who knew that the attacks were coming could have profited in a number of ways. One would be to sell stocks short - borrowing the shares and then selling them, hoping they could be bought back after a price drop. Another would be to buy put options, which give the owner the right to sell at a certain price for a limited time. The examination of possible illegal trading began in Germany, where financial regulators noticed suspicious trades in the stocks of reinsurance companies, which ultimately will pay billions of dollars in the wake of the attack. German authorities shared that information with officials in other European countries and in America. Those officials in turn began their own investigations.

Benign explanations are turning up in the examination being conducted in the U.S. by the Securities and Exchange Commission. For example, a number of reports have noted there was significant trading in the days before the attack in the parent companies of American Airlines and United Airlines, in which investors were positioning themselves for a fall in the companies' stock prices. This has been repeatedly cited as the strongest evidence of possible insider trading in this country, since only American and United planes were hijacked.

But concerns about the airline industry had been growing for some time, and had grown worse in the days before the attack. On Wednesday, September 5, a report by Reuters - which is widely read by market professionals - said that industry experts were predicting "a further deterioration" in the airline industry's financial performance. Market pessimism increased two days later when the AMR Corporation, the parent of American and Trans World Airlines, announced that its losses for the second half of the year would be greater than forecast.

In response, brokerage firms cut their ratings for AMR and other airlines. Hotel analysts, realizing that fewer travellers meant fewer overnight stays, followed suit. The short positions and volume of put options rose sharply across the travel industry - which has been cited repeatedly in news reports as possible evidence of illegal trading.

American and United were hit particularly hard. "The two airline companies that are the most closely related are American and United," said Paul Foster, a market strategist with, a market information firm. "I don't believe this has anything to do with the terrorists."

- New York Times

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