by Chronicle Staff and News Services
October 3, 2001
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Canadian securities officials said yesterday that the U.S. Securities and Exchange Commission has asked North American investment firms to review their records for evidence of unusual trading activity in securities affected by the Sept. 11 terrorist attacks.
The Investment Dealers Association of Canada told its 190 members that the SEC has identified 38 companies -- including the parent firms of United and American airlines, which lost four aircraft -- whose shares were traded at abnormally high levels in the weeks prior to the attacks, suggesting that buyers and sellers had advance knowledge of planned terrorist acts.
Canadian securities officials in Vancouver, British Columbia, late yesterday said they could not immediately comment on the communication from the SEC. But earlier in the day, a top official of the dealers' group, speaking in Toronto, confirmed that the SEC had asked Canadian firms to look not only at the 38 companies but any others that showed signs of unusual trading activity.
According to the Associated Press, the 38 companies include General Motors, Raytheon, Continental, Delta, Northwest, Southwest, USAirways, Boeing and defense contractor Lockheed Martin.
The SEC has declined to comment on news stories -- including five in The Chronicle -- of pre-Sept. 11 trading that suggest possible advance information about the attacks.
In a closely related development, the Wall Street Journal reported yesterday that trading in equities was not the only type of deal under investigation. The government also reportedly is looking into an unusual surge prior to the attacks in the purchase of five-year U.S. Treasury notes, a traditional safe-haven investment in crisis times.
The Journal said agents of the U.S. Secret Service -- which regulates currency in addition to protecting the president -- have contacted a number of bond traders regarding the unusually large purchases, including one $5 billion transaction.
Among the firms contacted were Dreyfus Corp., a mutual fund unit of Mellon Financial specializing in bonds, and Goldman Sachs Group Inc.
The SEC equities list named several big companies that were tenants in the collapsed buildings in the heart of New York's financial district: investment firms Morgan Stanley, the towers' biggest occupant; Lehman Bros.; Bank of America; and financial firm Marsh & McLennan.
While the SEC has been silent about specific investigative issues, Chairman Harvey Pitt told Congress last week that the agency's "No. 1 priority" is to pursue its worldwide investigation of possible trading by people associated with the terrorists.
If such trading did occur, "We will do everything within our power to track those people down and bring them to justice," Pitt said in testimony to the House Financial Services Committee.
In the days before the terrorist assaults, unusually high numbers of put options were purchased for the stocks of AMR Corp. and UAL Corp., the parents of American and United -- each of which had two planes hijacked. A put option is a contract that gives a holder the right to sell an asset at a specified price before a certain date.
Several insurance companies are on the SEC's list -- American International Group, Axa, Chubb, Cigna, CNA Financial, John Hancock and MetLife.
Germany's stock market regulatory agency has said it was looking into the possibility of suspicious short selling of insurance company shares just before the terrorist attacks. Similar statements have been made in interviews with The Chronicle by securities officials in London and Paris.
As with put options, investors who engage in short selling are betting that the price of the stock will fall.