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The Profiteers of 9-11

October 17, 2001

A Select Few Profited from Advance Knowledge of the Terror Attacks.

Sept. 11 marked a devastating loss for the nation, but shrewd financial speculators with ties to the highest levels of the CIA appear to have profited from the disaster, raising questions about exactly who had prior knowledge of the terrible tragedy.  The day two passenger planes crashed into the World Trade Center ended differently for different people. For some 10,000 children it meant the loss of a mother or father. For millions of Americans it marked the end of normality. For a select group of financial speculators it meant increased profits.

There have been numerous reports of unusual activity in financial markets around the world suggesting prior knowledge of the Sept. 11 attacks on the World Trade Center and the Pentagon.  In Chicago, home of the Chicago Board Options Exchange (CBOE), the largest of the five options exchanges in the nation, brokers and speculators known as options traders wage bets daily about what a stock price will do. In options trades there are winners and losers regardless of the outcome.  The catastrophic events of Sept. 11 were no different; the devastation at the World Trade Center resulted in some speculators winning millions of dollars from options purchased at the CBOE-while others lost their lives.  A $2.5 million winning that resulted when the United Airlines share price fell after two of its planes crashed remains unclaimed more than six weeks after the tragedy.

Investigations into the unusually high number of "put" options, betting that the price of United Airlines (UAL) and American Airlines shares would fall, have revealed that Alex Brown Inc., an investment banking firm, purchased many of these option contracts. Alex Brown Inc. was, until 1998, managed by the man who is now the executive director of the Central Intelligence Agency, A.B. "Buzzy" Krongard.  Krongard, 64, former head of Baltimore-based Alex Brown, America's oldest investment bank, joined the CIA three years ago as a counselor to Director of Central Intelligence George Tenet.  Krongard switched careers shortly after helping engineer the $2.5 billion merger of Alex Brown and Bankers Trust New York Corp., gaining $71 million in Bankers Trust stock in the process.

President Bush appointed Krongard executive director of the Central Intelligence Agency on March 26. From February 1998 until March 2001, Krongard served as counselor to the director of central intelligence. Until 1997 Krongard was chairman of the investment bank A.B. Brown, having previously worked in various capacities at Alex Brown.  Krongard was quoted on the relationship between Wall Street and the CIA in a Washington Post article. If you go back to the CIA's origins during World War II in the Office of Strategic Services, Krongard told the Post, "the whole OSS was really nothing but Wall Street bankers and lawyers."


Between Sept. 6 and 7, the CBOE saw a dramatic spike in the purchases of put options on United Airlines stock compared to call options.  A "put" option increases in value when the stock price falls, while a "call" option increases if the share price rises. The ratio of "put" options to "call" options was 12 to 1, with 2,372 "put" options purchased, betting that UAL stock would fall compared with 198 "call" options. The winners on these options deals walked away with untold millions of dollars in profits.

On Sept. 10, speculators in Chicago purchased put options on American Airlines, the other airlines involved in the hijackings, at a ratio of 6 to 1 against "call" options. Traders bought 2,258 put options as compared with 374 "call" options the day before the crashes.  There were similar spikes in "put" option contracts on the shares of the investment firms of Morgan Stanley Dean Witter & Co. and Merrill Lynch & Co., major tenants of the World Trade Center, occupying 22 floors each, who were both devastated by the terror attacks. 

In the three days of trading prior to Sept. 11, Morgan Stanley "put" options spiked dramatically.  According to figures provided by Options Clearing Corp. of Chicago, during the two trading days before the attacks the total number of "put" options jumped to 7,647 compared with a daily average of 2,384 during the month of August. Morgan Stanley's shares fell from $48.90 to $42.50 in the aftermath of the attacks.  Likewise, Merrill Lynch "put" options jumped to 64,445 in the three days before the attacks. On Sept. 10, 28,960 "put" options were purchased on Merrill Lynch compared with a daily average of 5,430 during the month of August. Merrill's shares fell from $46.88 to $41.50.

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