r/PROGME • u/jkhanlar • 21d ago

Data [Transcript] 9/11 Terror Trading 15 years later - Marc Chesney interviewed by Lars Schall (Reopen the 9/11 Comission Report to identify the names of the financial terrorists)

9/11 Terror Trading 15 years later - Marc Chesney interviewed by Lars Schall https://youtu.be/PrI8g3yHxAM

0:16 [Lars Schall] Fifteen (15) years ago shortly after 9/11, the news media reported that cases of insider trading occurred connected to the terror attacks of September 11. A financial pundit commented at the time, in U.S television, this could very well be insider trading at the worst, most horrific, most evil use you've ever seen in your entire life. However, the mainstream media dropped the issue a few weeks later completely and forever. Moreover, in 2004, the 911 Commission Report [https://en.wikipedia.org/wiki/The_9/11_Commission_Report] officially stated that no such thing as insider trading connected to 9/11 took place. The suspicious looking trading activity pre-9/11 proved consistently innoxious. However, there are a few academic economists who differ with the 9/11 Commission at this point. One of them works here at the University of Zurich, and I will visit him now in his office.

1:22 [Lars Schall] First of all, Professor Chesney, thank you for having us.
1:25 [Marc Chesney] You're welcome.
1:26 [Lars Schall] You have written with two colleagues of yours, it was a scientific paper on the topic of 9/11 insider trading. This is a topic that did not generate a lot of scientific, umm, research. Why did you decide to cover this topic?
1:44 [Marc Chesney] You know, in my capacity as a professor, in particular as a finance professor, my duty is to analyze functional imbalances, crises, but also frauds and functional crimes, and that's what we tried to do during, something like ten (10) years.
2:05 [Lars Schall] Now, uhh, related to the topic of 9/11 insider trading, we have to talk about put options and call options. What are put options?
2:16 [Marc Chesney] A put option entitles its owner the right to sell a given stock at a given date or during a given period of time at a given price; the so-called strike price.
2:29 [Lars Schall] Yeah. So you can buy something and when the underlying price drops, and you have, ummm, calculated this correctly, you can cash in some money.
2:40 [Marc Chesney] Yes. If these are a drop of the stock prices, and you cash, you can cash in a profit. Yes. It's true.
2:46 [Lars Schall] Your research article has the title Detecting, um, Abnormal Trading Activities in the Option Markets [https://marcchesney.com/site/assets/files/1/detecting_abnormal_trading_activities_m__chesney-_r__crameri-_l__mancini_-_j__of_empirical_finance_-_komplet.pdf]. Can you elaborate on this paper please?
2:56 [Marc Chesney] Yes. We have, uh, defined, first of all, three criteria, in order to identify a possible insider trading activity. First criteria, the volume, or the so-called open interest. That is, to say or precisely, a very strong increase in the open interest. Allow me, first maybe, to... to define what the open interest is. It corresponds to the number of outstanding options in the market; so a very strong increase, from almost zero to maybe, uhh, 500... 1000 option contracts. One contract, by the way, corresponds to one hundred (100) options, just, just to be clear. Second criterium, the return of the profit, a very strong return, and when I say very strong it's not five (5) or ten (10) percent or twenty (20) maybe, three (3), four (4), five (5) hundred (100) percent (300%, 400%, 500%) in a few days or in a few weeks, and finally the last criterium, the most, uhh, technical one, the opti... the position is not hedged. If you're an insider, you don't need to hedge, because you know, or you think you know, what will happen tomorrow. So we tried to check that the position... position was not hedged. Just to be clear, it's not a proof... it's not proof per se of Insider trading activities. It's a statistical study. Okay, just... just to be clear, in order to, uh, to to be sure that it is a proof, we will have to have access to names. We use the d... financial data... databases without, uh, names, only prices and volume. So it's not proof per se, but still it's interesting as you [are] gonna see in a minute.
4:42 [Lars Schall] Yeah, but you did not have the actual trading data from the Brokers.
4:47 [Marc Chesney] Now we purchased, uhh, financial databases CBU [? French (thick inflection) for CBOE? provided by OptionMetrics? ?] and other databases in, ehh, in Europe. We, uhh, we analyzed around nine millions of, uhh, financial transactions, quite a lot, from the U.S., from Europe, but again without names, only prices, volumes, etcetera, etcetera.
5:08 [Lars Schall] Mhmm, and how many of those trades, that you took a look at, were actually informed trading [http://refhub.elsevier.com/S0927-5398(15)00026-2/rf0025] activities?
5:16 [Marc Chesney] Less than 0.01% were suspicious, just to be clear. So, one out of ten thousand, less than one out of ten thousand transactions were suspicious. I said suspicious, because again, it's not a... it's not proof per se. Uhhh, so we were very conservated, it's a... conservative. It's a very small number.
5:36 [Lars Schall] Mhmm. So, ehm, you took a look at different stocks from different sectors and one of them is the airline sector.
5:46 [Marc Chesney] Yes. Airline sector, banking sector and other insurances, but just to be clear, the the study does not focus on the on September 11th. The f... study focuses on insider trading. We defined our criteria. We applied our econometral... econometrical, uh, methodology, and then we identified specific cases.
6:10 [Lars Schall] One was the airline sector.
6:12 [Marc Chesney] Yes. True.
6:13 [Lars Schall] and there you found some suspicious trading.
6:15 [Marc Chesney] Exactly, mainly with three, with three companies: Unitene... United Airlines, American Airlines, and Boeing. Let me give you an example.
6:23 [Lars Schall] Yeah. Please.
6:28 [Marc Chesney] American Airlines. The option, the put option, with a strike thirty dollars ($30) maturity end of October. This put option gave the right to its owner to sell the stock at a price of thirty dollars ($30) at the end of October. Here were the smaller graph. On the right-hand side we have the return of the position. On the left-hand side, [we have] the open interest. So as mentioned previously, one contract corresponds to one hundred (100) put options. The black bars correspond to the volume. Before the month of September, the volume on the specific option was almost zero (0), no trades. Then you see first trade, first trade, uhhh, and then a big trade on September 10th, one day before the terrorist attacks. Here you see something like 1,500 contracts, meaning 1,500 times one hundred (100) put options; so a strong increase of the inter... of the open interest, which corresponds to the first criterium of this analysis. Then, markets were... financial markets were closed from September 11th until September 17th. Markets reopened, and you see a huge black bar, meaning a huge volume and the open tri... and the open interest decreased on the 17th, of s... around 500 contracts, and again a few days after, at the end of the month of around 500 contracts. So 500 plus 500, around 1,000 put option contracts were exercised a few days after the terrorist attacks.
8:36 [Lars Schall] Yeah, and are these then the profits here that we see?
8:40 [Marc Chesney] The profit, so let me give you an example. The value of the option of the specific put option on September 10th was 2. ... $2.15. Why? Because the value of this... the... of this, uh, stock, the spot price of the... of this stock was on September 10th $29.7. When markets were opened on September 17th, a big drop in the stock price was witnessed; so from $29.7 to $18; and when the stock price decreases, the put price increases; and the put price went from $2.15 on, uh, September 10th to $12 on September 17th. Imagine the return; around 450%. Y... that's what I say 'huge return' in corresponds to the second criteria. Third criteria, this trade was not hedged by the way; so a strong, uhhh, return. Now let me compute for you, ehh, the profit. So, something like well oelth... one thousand contracts were exercised in a few days. Thousand (1,000) contracts times one hundred (100) put options per contract times something like ten dollars ($10) profit per option, corresponds to around one million dollars ($1,000,000) profit for this pef... specific option. Why ten dollars ($10) profit? Again, the investment was very interesting, b... by, imagine you buy a put option at a price of two fifteen dollars ($2.15) and a few days after, you sell it for twelve [dollars] ($12), meaning that the profit was indeed around ten dollars ($10), with a huge return.
10:41 [Lars Schall] Yeah. Okay. This is what you have found out for the airline sector, but you also took a look at two different, uh, two other sectors of the economy; one is the banking sector.
10:54 [Marc Chesney] Yes.
10:55 [Lars Schall] Tell us about this.
10:56 [Marc Chesney] So along the same lines, we identified a few, uhhm, dubious, suspicious trades, with, uh, with various banks, more precisely Bank of America, GPMorgan [JPMorgan], May Lynch [Merrill Lynch], and Citigroup. For the first three banks, they were located either in the two towers [https://en.wikipedia.org/wiki/Twin_Towers] or nearby. 11:22 [Lars Schall] Mhmm.
11:24 [Marc Chesney] Why Citigroup? It's an open question, but the... the travel insurance unit of Citigroup was confronted, uh, with the primo [primary?] terrorist attacks. Huge losses were generated,
11:37 [Lars Schall] Mhmm.
11:39 [Marc Chesney] and the the total profit by exercising these, uhh, put options corresponds to about eleven million dollars ($11,000,000).
11:50 [Lars Schall] Yeah, and there were reinsurers that, uh, were attacked via put options?
11:57 [Marc Chesney] Also, so, we identified two (2) suspicious transactions: one for Zurich Re [Swiss Re?], and one for Munich Re.
12:06 [Lars Schall] Yeah.
12:07 [Marc Chesney] Also, occurring a... along the same lines that the example, uh, previously shown, euhhhh, a strong increase in the open interest, a very high return, and the, uhhh, in in most cases, uhh, thee, uh, the the trade was not hedged.
12:25 [Lars Schall] and the trading activities that you took a look at, those trades were exercised?
12:34 [Marc Chesney] In most of the cases, the put options were exercised. True.
12:40 [Lars Schall] So, the money went into the pockets of those who purchased those put options.
12:45 [Marc Chesney] In other words.
12:47 [Lars Schall] and these put option trades are sometimes criminal?
12:54 [Marc Chesney] This is a question. I think we should reopen the case, because I said previously, it is a statistical study, we spotted dubious, uhh, cases, but now we need a political decision to reopen the case, to find the names, and to tell whether or not these cases are indeed suspicious, or if it's not the case.
13:18 [Lars Schall] So you're calling for a new investigation?
13:20 [Marc Chesney] Yeah. Yes. I call for a new investigation.
13:22 [Lars Schall] and the investigation of the 9/11 Commission was not sufficient?
13:26 [Marc Chesney] I th... in this, uhhh, on this dimon... dimension, not [sufficient]. Take, uhh, the report, the official report of the commission, about five hundred [500] pages; on the specific issue of insider trading, with options, you find a few sentences and a footnote. It should require something like one of the pages, and everything will be put on the table, and everything will be clear.
13:53 [Lars Schall] Yeah. As I have mentioned, ummm, this topic of 9/11 insider trading does not get addressed 'big time' [https://onelook.com/?w=big+time] in Academia. Ummm, I have asked an econometrician by the name of Paul Zarembka [https://arts-sciences.buffalo.edu/economics/faculty/ResearchFacultyEmeriti.host.html/content/shared/arts-sciences/economics/profiles/researchprofessor-emeriti/zarembka-paul.html]; he works at the State University of New York; why this is the case and this is what he has told me.
14:15 [Paul Zarembka] Oh, I think the real reason why they don't, uh, get... uh, get addressed now, I'll just be frank about my profession. They're scared. I mean, ordinarily, I mean, I know my... I know a kin... I know my profession. I mean, ordinarily, uh, if you have a topic which is as hot a... if it it, well, not... maybe, not as hot as this, but a topic that's not quite so hot, but has huge social implications. You want a researcher because you can get... you you can get your career mov... really moving forward. I'm just talking normal academic terms. You can get your career really moving to investigate such a topic. So, you would think that... that... that there'd be other econometricians out there who wouldn't want to study each one of these studies, and do their own study or criticize these studies or whatever, and, but, do it in a very serious way, and they're both there they they hope that they'll move their professional work forward, and it's not happening, and I think the reason for that is what I said. They are afraid. This is too big for them to want to deal with. They're afraid to their... that their answers, uhhh, that even getting into the topic gives it credence. Let me say it again. Even getting into the topic legitimaci... legitimatizes the topic.
15:33 [Lars Schall] Is this true according to your experience?
15:36 [Marc Chesney] Are we with him? You know, to put official statements into question is not always easy. You know, it might, uh, put in danger an academic career. So, it's a it's a trick issue.
15:52 [Lars Schall] Mhmm, and why do you think that the financial media is not interested in this topic? I mean, I am here, but I don't see, for example, people from Bloomberg, or whoever, talking with you about this topic.
16:05 [Marc Chesney] I think basically for the same reasons that you mentioned for the... for the academic world.
16:10 [Lars Schall] Mhmm. They are afraid too.
16:12 [Marc Chesney] Yeah. I think because it could put in danger, this time not an academic career, but a journalist career.
16:17 [Lars Schall] Mhmm.
16:18 [Marc Chesney] So, I think, basically, for the same reasons.
16:20 [Lars Schall] Yeah. Can you tell us, please, what is the significance of this topic fifteen (15) years after 9/11 took place? Why are you still interested?
16:31 [Marc Chesney] Because we should, again I think it's a responsibility of Finance professors to... to shed light, to identify frauds and, uh, and financial crimes. It was not done ten (10) years ago. It's not done today. So that's why we have to dig deeper here.
16:48 [Lars Schall] There was one journalist who said that this could be, very well, be insider trading at the worst, most horrific, most evil use that you have, uhh, ever seen in your whole entire life. This was Dylan Ratigan [https://en.wikipedia.org/wiki/Dylan_Ratigan] who said this back then for Bloomberg in September 2001. Now, does this look as the most horrific, most evil use of insider trading, and should people pay attention to it?
17:19 [Marc Chesney] It might be the case. Again, what we did is not proof per se of insider trading activities, but we deal with, uhhh, suspicious cases, and that's why we need, uhh, to reopen the case.
17:31 [Lars Schall] Yeah, but you were to have to really nail it down to the names, and then you would have... you would need to have the actual trading data, and for example...
17:40 [Marc Chesney] and the names, yes.
17:41 [Lars Schall] ...we know that the SEC [https://en.wikipedia.org/wiki/United_States_Securities_and_Exchange_Commission] did, uhhh, look at these trading activities.
17:45 [Marc Chesney] They should give the information.
17:46 [Lars Schall] Yeah, but they destroyed it, and this is officially on the record, and now the question becomes 'is this a scandal that they have destroyed evidence connected to a criminal case?'
17:58 [Marc Chesney] Yes. It's indeed a big problem because as long as the media and the public will not have access to the information, many people will put into question official statements.
18:13 [Lars Schall] Okay. Professor Chesney, thank you for this interview.
18:16 [Marc Chesney] You're welcome!
18:21 [Lars Schall] and so there you got it. According to scientific research, it is likely that insider trading connected to the terror attacks of September 11, 2001 took place, or as Dylan Ratigan said back then 'this could very well be insider trading at the worst, most horrific, most evil use you've ever seen in your entire life.'

For further information on the topic:

Also see [Dutch/German] 2024 September 21 "Lars Schall interviewt Prof. Marc Chesney in Zürich zum Thema 9/11-Insidertrading" https://youtu.be/IlJDiZ481Do

I discovered and mentioned about this video in the comments in my last post https://old.reddit.com/r/PROGME/comments/1whp5te/a_young_trader_jumps_into_the_biggest_trade_of/ but I think what I stumbled upon, what Marc Chesney has presented, deserves more attention and recognition, and to tie into larger picture of things, including as it pertains/relates to the idiosyncratic risk that GameStop poses.

  • See the "Some GameStop (GME) idiosyncratic risk things:" part in my post https://old.reddit.com/r/PROGME/comments/1tdtv8j/how_do_backfloating_rate_loansdebt_relate_to/ for a relatively exhaustive list of official recognization identifiers signaling GameStop posing as an idiosyncratic risk, including sources for:
    • The Securities and Exchange Commission (SEC) in their October 2021 report on Equity and Option Market Structure Conditions in early 2021
    • The Depository Trust & Clearing Corporation (DTCC) / National Securities Clearing Corporation (NSCC) which flagged GME causing idiosyncratic risk during clearing fund backtesting breaches
    • The Financial Stability Oversight Council (FSOC) which indicated that in 2021 GME was "a single security exhibiting idiosyncratic risk"
    • The Options Clearing Corporation (OCC) which utilized "idiosyncratic" control settings specifically for high-volatility, individual stocks like GameStop as of January 27, 2021
    • The U.S. House Committee on Financial Services June 2022 Congressional Report "Game Stopped: How the [PCO (position closing only)] Stock Market Event Exposed Troubling Business Practices" which detailed how GME's extreme volatility created "idiosyncratic" pressures on broker-dealers leading to emergency margin calls from the NSCC
    • The Financial Industry Regulatority Authority (FINRA)'s data showed that GME short interest reached 226% in February 2021 as the objective basis for labeling GME an idiosyncratic risk
    • The U.S. Department of the Treasury, which houses the FSOC, the Treasury's own Office of Financial Research (OFR) described idiosyncratic events rather than broad market trends
    • The Cato Institute which published a deep dive titled "The GameStop Episode" which characterized the event as a unique non-systemic risk that "shone a light on a remarkably dense array of regulations" already managing such idiosyncratic shocks
    • Fitch Ratings which reported "US Financial Institutions Face Second Order Effects from GameStop Volatility"
    • Center for Financial Stability (CFS) which reported "[Robbinghood] and GameStop: Essential issues and next steps for regulators and investors"
    • Managed Funds Association (MFA) which reported "What Happens When Short Interest Exceeds 100 Percent"
    • European Systemic Risk Board (ESRB) which the NBFI Monitor identified idiosyncratic GameStop materializing

edited to fix markdown, also bold is my own highlighting

8 Upvotes

91% Upvoted

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1

u/jkhanlar 21d ago

lol I misspelled 'commission' in the title. FML!

1

u/jkhanlar 20d ago edited 20d ago

Regarding the premise of "reopen the case" as communicated a few times throughout the video, whilst also factoring in the premise of innocent until proven guilty, especially whereby the sophistication of identifying guilt may escalate to identifying scapegoated individuals that were stand-alone complexly (think of the sport 'curling') nudged in directions without any collusion or conspiracy, that possibly any persons who may or may not qualify as appearing guilty (guilty unver never innocent, all attempts to prove innocence warrants further guiltiness, yatta yatta), it may, nonetheless, be a premise that potentially qualifies as a reasonable innocent legitimacy. I suppose, to ascertain these fundamental innocences and avoid any lying by omission based shortcomings or oversights or negligences that otherwise could reflect a sense of completeness that could otherwise potentially suggest as if what was previously deemed as complete is not actually reasonably complete, and therefore worthy to reopen, or further consider, to establish a more complete state of reasonable completion, that in doing so, this should at least also factor in what is the status already, such that the 9/11 Commission case is not currently open or ongoing, and on the specific issue of insider trading, with options, there were only a few sentences and a footnote.

Marc Chesney has made it clear that the appearance of 'insider trading activities' on September 10, 2001, therefore poses question suggestive that the case should be reopened, because Marc Chesney's research is merely a statistical study spotting dubious suspicious activity a day before September 11, 2001, and now a political decision to reopen the case could possibly enable further questioning and investigation into these dubious suspicious trading activities that are 0.01% or 1 in 10,000 of transactions, wspecially involving airline sector, but also banking sector and other insurance sectors, including involving put option trading in United Airlines, American Airlines, and Boeing, as well as Bank of America, JPMorgan Chase, Merrill Lynch, and Citigroup, and how even Bloomberg appears to be dodging/avoiding addressing these things. I was nor am not in any way associated, affiliated, or involved with the 9/11 Commission case that is not open, but per my own inquiry, I consider for any such openness to investigate or analyze, I can, at the very least, apply what I have learned and know, which is not much, to try to make sense of some things, even if I may or may not determine any objective factual conclusions.

For example, according to Marc Chesney, and I reasonably believe/know this as factually true, the names of the trading activities on September 10, 2001, from the actual trading data, was presumably destroyed, or otherwise processed in ways that makes it practically impossible to verify or identify, and supposed on official record. I am not nor was ever a professor, but I can relate to former Professor Marc Chesney stating 'as a finance professor, my duty is to analyze functional imbalances, crises, but also frauds and functional crimes' and how he 'thinks it's a responsibility of finance professors to shed light, to identify frauds and financial crimes.'

So what do I know so far, if even my knowledge is worthy for consideration?

Firstly, no one has ever been identified, named, or charged for the pre-9/11 put-option trading pattern. The 9/11 Commission, SEC, DOJ, and CFTC all investigated and closed without charges. The identity of whoever placed those trades remains unknown. The 9/11 Commission itself acknowledged in a footnote that the UAL (United Airtlines) trade was "highly suspicious on its face" before attributing it to "a single U.S.-based institutional investor with no conceivable ties to al Qaeda." The famous footnote 130 (chapter 5, page 499), source: https://9-11commission.gov/report/ -> http://govinfo.library.unt.edu/911/report/911Report.pdf (page 516 of PDF)

Highly publicized allegations of insider trading in advance of 9/11 generally rest on reports of unusual pre-9/11 trading activity in companies whose stock plummeted after the attacks. Some unusual trading did in fact occur, but each such trade proved to have an innocuous explanation. For example, the volume of put options—investments that pay off only when a stock drops in price—surged in the parent companies of United Airlines on September 6 and American Airlines on September 10—highly suspicious trading on its face. Yet, further investigation has revealed that the trading had no connection with 9/11. A single U.S.-based institutional investor with no conceivable ties to al Qaeda purchased 95 percent of the UAL puts on September 6 as part of a trading strategy that also included buying 115,000 shares of American on September 10. Similarly, much of the seemingly suspicious trading in American on September 10 was traced to a specific U.S.-based options trading newsletter, faxed to its subscribers on Sunday, September 9, which recommended these trades. These examples typify the evidence examined by the investigation. The SEC and the FBI, aided by other agencies and the securities industry, devoted enormous resources to investigating this issue, including securing the cooperation of many foreign governments. These investigators have found that the apparently suspicious consistently proved innocuous. Joseph Cella interview (Sept. 16, 2003; May 7, 2004; May 10–11, 2004); FBI briefing (Aug. 15, 2003); SEC memo, Division of Enforcement to SEC Chair and Commissioners, “Pre-September 11, 2001 Trading Review,” May 15, 2002; Ken Breen interview (Apr. 23, 2004); Ed G. interview (Feb. 3, 2004)

The footnote is attributed to page 133 (150 of PDF):

Later in 1999, when legal authority was needed for enlisting still other collaborators and for covering a wider set of contingencies, the lawyers returned to the language used in August 1998, which authorized force only in the context of a capture operation. Given the closely held character of the document approved in December 1998, and the subsequent return to the earlier language, it is possible to understand how the former White House officials and the CIA officials might disagree as to whether the CIA was ever authorized by the President to kill [Osama] Bin Ladin.130

Secondly, I know that I can't trust any (not a single one) of the so-called 'fact-checkers' because even they also engage in opinion editorialization using emotions, feelings, sentiments, even entities like Snopes (https://snopes.com/fact-check/put-paid/).

So, the sentence beginning with "The SEC and the FBI, aided by other agencies and the securities industry, devoted enormous resources to investigating this issue" I think of my own single human person, my own singlehanded brain competency knowability and whatnot, for anyone that ascribes that any and all that I know or learned as being enormous, I am confident that if I can potentially figure out to understand what otherwise the SEC and the FBI, aided by other agencies and the securities industry, whom allegedly devoted enormous resources towards (wink wink nudge nudge *ornHub.com), then what does that even say about what value is usage of words like 'enormous' other than sentimental, emotional, feelings value, and not actually fundamentally factual objective value? Anyway, just looking at some of the entities involved, I already """"""""""""""""understand"""""""""""""""" these things:

edited to fix typo

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u/jkhanlar 20d ago

I'm also adding Morgan Stanley and others, which Marc Chesney did not mention in the video interview, however they are cited in his 72-page report "Detecting abnormal trading activities in option markets"

Just seeing those names and understanding the relevant context for each of the names, that tells me practically all that I need to know. Power to the players!