The Death of Money Read Online Free PDF Page A

dodge. Saying that
     agencies uncovered no evidence does not mean there is no evidence, merely that they
     failed to find it. The conclusion that no oneprofited does not mean that transactions did not take place, merely that the profits
     could not be ascertained. Perhaps the perpetrators failed to collect their winnings,
     like a bank robber who drops a satchel of stolen cash in flight. The inside terrorist
     traders may not have known the exchange would be closed for days after the attack,
     making it impossible to settle trades and collect winnings.
    Despite the official denial, proof of the terrorist trading connection is found through
     a deeper dive into the world of forensics and the phenomenon of signal amplification.
     The unusual options trading in advance of 9/11 has been closely studied by academics.
     The literature, most of it published
after
the 9/11 Commission completed its work, is emphatically of the view thatthe pre-9/11 options trading was based on inside information.
    The leading academic study of terrorist insider trading connected to 9/11 was done
     over four years, from 2002 to 2006, by Allen M. Poteshman, then at the University
     of Illinois at Urbana-Champaign. His conclusions were published by the University
     of Chicago in 2006.
    These conclusions were based on strong statistical techniques. This is like using
     DNA to prove a crime when there was no eyewitness. In murder cases, prosecutors compare
     a defendant’s DNA to samples found at the crime scene. A DNA match might implicate
     a defendant in error, but the chance is so slight, so exceedingly remote, that juries
     routinely convict. Certain statistical correlations are so strong that the obvious
     conclusion must be drawn despite a microscopic chance of error.
    Academics like Poteshman take large sets of data and establish the normal behavior
     of stocks, called the baseline. Researchers then compare actual trading in a target
     period to the baseline to see if the target period represents normal or extreme activity.
     Explanatory variables are tested to account for extreme activity.These techniques have proved reliable in many investigatory and enforcement contexts.
     During the dot-com bubble, for example, they were used to uncover widespread illegal
     backdating of options by technology companies.
    Poteshman’s data for the purposes of establishing a baseline included a daily record
     of options trades on all stocks in the S&P Index from 1990 through September 20, 2001,
     shortly after the 9/11 attacks. He focused on several relevant ratios before turning
     to the one most likely to be usedby terrorists—the simple purchase of put options on AMR and UAL. A put option on a
     stock is a bet that the stock’s price will fall.
    He arranged the data in decimal brackets from 0.0 to 1.0, with 0.0 representing extremely
     low activity in put options and 1.0 representing extremely high activity. He discovered
     that in the four trading days prior to 9/11, the maximum daily value for either hijacked
     airline was 0.99 and the maximum value over the entire four-day window was 0.96. In
     the absence of any news that would explain such an extreme skew, the inescapable conclusion
     is that this activity represents insider trading. Poteshman writes:
    There is evidence of unusual option market activity in the days leading up to September
     11 that is consistent with investors trading on advance knowledge of the attacks.
    Another leading study, conducted by the Swiss Finance Institute, reached the same
     conclusion. This study covered the period 1996 to 2009 and analyzed over 9.6 million
     options trades in thirty-one selected companies, including American Airlines. With
     respect to 9/11, the study concluded:
    Companies like American Airlines, United Airlines, Boeing and to a lesser extent Delta
     Air Lines and KLM seem to have been targets for informed trading activities in the
     period leading up to the attacks. The number of new put options issued