The Death of Money Read Online Free PDF

during that
     period is statistically high and the total gains . . . realized by exercising these
     options amount to more than $16 million. These findings support the evidence in Poteshman
     (2006) who also documents unusual activities in the option market before the terrorist
     attacks.
    The 9/11 Commission was aware of the trading records used by subsequent scholars,
     and it was familiar with media reports that insider trading by terrorists had taken
     place. Yet the 9/11 Commission denied any connection between the options trading and
     terrorists. Its failure to conclude that terrorist insider trading took place is due
     to its failure to understand
signal amplification
.
    *  *  *
    Signal amplification in stock trading describes a situation where a small amount of
     illegal trading based on inside information leads to a much greater amount of
legal
trading based on the view that “someone knows something I don’t.” It is a case of
     legitimate traders piggybacking on the initial illegal trade without knowing of the
     illegality.
    Again, no one can trade in isolation. For every buyer of put options, there is a seller
     who sees the transaction take place. Each trade is entered on price reporting systems
     available to professional traders. A small purchase of put options by a terrorist
     would not go unnoticed by those professionals. There was no news of any importance
     on American or United Airlines in the days before 9/11. Anyone seeing a small trade
     would ask herself why a trader would make a bet that the stock was going down. She
     would not know who was doing the trading, but would assume the trader knew what he
     was doing and must have a basis for a bear bet. This pro might buy a much larger amount
     of put options for her personal account as a piggyback bet on the stranger’s informed
     trade.
    Soon other traders begin to notice the activity and also buy put options. Each trade
     adds to the total and amplifies the original signal a little more. In extreme cases,
     the dynamic resembles the chaotic climax of the film
Wall Street,
in which initial insider trading in Blue Star Airlines by Charlie Sheen’s character
     cascades out of control amid shouts of “Dump it all!” and “We’re getting out now!”
    In the event, 4,516 put options, equivalent to 451,600 shares of American Airlines,
     were traded on September 10, 2001, the day before the attack. The vast majority of
     those trades were legitimate. Yet it only takes a small amount of terrorist insider
     trading to start the ball rolling on a much larger volume of legitimate piggyback
     trading. The piggyback traders had no inside information about an attack; they were
     betting that other traders knew negative news on AMR that had not been made public.
    They were right.
    A standard rejoinder, by many in the intelligence community, to suggestions of terrorist
     insider trading is that terrorists would never compromise their own operational security
     by recklessly engaging in insider trading because of the risks of detection. This
     reasoning is easily rebutted. No one suggests that terrorist hijacker Mohamed Atta
     bought put optionson AMR through an E*Trade account on his way to hijack American Airlines Flight 11
     from Logan Airport, Boston. The insider trading was done not by the terrorists themselves
     but by parties in their social network.
    As for operational security, those imperatives are easily overridden by old-fashioned
     greed. A case in point is home decorating maven Martha Stewart. In 2001 Stewart was
     one of the richest women in the world due to the success of her publishing and media
     ventures related to cooking and home decorating. That year she sold stock in ImClone
     Systems based on a tip from her broker and avoided a loss of about $45,000; that sum
     was a pittance relative to her fortune. In 2004, however, she was convicted of conspiracy,
     obstruction of justice, and making false statements in connection with the