T4 B8 Hence Fdr- Entire Contents- 6-4-03 Kyle Hence Email Fwd by Zelikow to Team 4 and Copy of Making a Killing- Part II 504

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Date: Wed, 4 Jun 200300:20:14-0400From: Philip Zelikow 4PTo: "" 4PCc: "" 4P

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Team 4 --Here is a description of this allegation.Philip

Original MessageFrom: Kyle F. Hence [mailto:[email protected]]Sent: Tuesday, June 03, 2003 11:37 AMTo: Phillip Zelikow; Diane Campagna; [email protected]: Pre-attack Insider Trading articleDear Dr. Zelikow,As promised here is material that might be useful to you with regard toyour investigation of insider trading allegations or suspicians.

The attached is an article I wrote (posted on globalresearch.ca) tooffer an overview of the evidence I discovered on the net and mainstreampress. I understand the DoJ has inserted itself into the process andmay have taken over the investigation from the SEC. However, I am notclear on this point.The best sources for trading data would be Bloomberg and Phil Erlangerat erlangersqueezeplay.com. The Chicago Board of Options Exchange mighthelp as well in this regard.Again as I mentioned the other day, the UK investigation determined theanomalous trades were not Al-Qeada. If not Al-Qeada, then who? Who hadprior knowledge detailed enough to bet on United and American but NOTDelta?I suppose we should ask if it might have been some of the same peoplethat warned top Pentagon Brass NOT to fly on September llth (as reportedin Newsweek) or Mayor Willie Brown the same (SF Chronicle). This, justan example of the kind of lateral thinking that needs to be done in myview to get to the bottom of 9/11 events.Sincerely,Kyle F. Hence

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Singapore, Hong K ong, Italy, France, S witzerland, the Netherlands, Great B ritain,Germany and Can ada. Jonathan Winer, an ABC New s Consultant said "it's absolutelyunprecedented to see cases of insider trading covering the entire world from Japan to theUS to No rth America to Europe." [World News Tonight, Sept. 20, 2001] Investigatorswere soon hot on the trail on a matter of obvious national security to m any nations.Bloomberg News reported that Former chief of Enforcement at the SEC ; W illiamMcLucas said regulators will "certainly be able to track down every trade, where the tradecleared, where the trade was directed from." However, Treasury Secretary O'Neilldownplayed hopes for a successful investigation by pointing out the challenge ofpenetrating veils of secrecy before a name can be attached to a suspicious trade; "You'vegot to go through ten veils before you get to the real source." [AP; September 20,testimony b efore Senate Ban king Comm ittee] . Talk about lowering the bar ofexpectations; very unsettling coming from someone w ho could help bring to justice thoseguilty of the worst terrorist attack historythe massacre of thousands.In the months since these comm ents, tightlipped authorities have revealed few details.Any questions put to those prosecuting the war on terrorist funding cannot be answered.The familiar refrain is heard; "our investigation is ongoing." Though widely reported inSeptember and October of last year, months have elapsed since the insider tradingreceived attention. The unresolved crime of 9-11 insider trading is a dark cloud thathangs over this administration and its prosecution of the 'war on terrorism.' What isworse is that those who profited remain free to use those profits of death to finance theirnext attack.For those who dismiss the whole phenom ena, here's what we do know thus far fromreports from major newspapers and television news outlets around the globe. Takenseparately any of the following details or comments is notable, but taken together andplaced in context, the evidence of unprecedented profiteering by terrorists and/or thosewith prior knowledge is clearly undeniable.Massive Put Options spikes and 'Naked' callsBloomberg News reported that pu t options in U AL Corp (parent for United Airlines)surged 285 times the average vo lume and 75 times the total number of put options tradedup unti l that time. Th is was the largest reported spike. In another observation of the samephenomena reported in the September 22nd Herald Sun, U AL put options contracts soared90 times in one day over total from the previous three w eeks. That's 90x not 90%. O nSeptember 10, put option contracts on AM R (parent for American Airlines) spiked 60times the daily average and five times the total of all $30 put options traded beforeSeptember 10 . [Montreal Gazette, "Pre-attack trading probed: Regulators in U.S., Europeand Asia check put op tions"; Judy M athewson and Michael Nol, September 19]"I saw put-call numbers higher than I've ever seen in 10 years of following the markets,particularly the options markets," said John Kinnucan, principal of Broadband Researchquoted in The San Francisco C hronicle.


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Bloomberg.com and Erlangersqeezeplay.com published reports identifying a clear patternof highly unusu al, and in some cases, massive spikes in put options in stocks that wouldhave been deemed by those with detailed prior knowledge most likely hardest hit in themarket aftermath of a WTC attack. These were primarily airline (UAL an d AMR, notablynot Delta), insurance, brokerage an d hotel stocks. Phil Erlanger also noted a pattern ofsignificant spikes in 'naked calls' in the same stocks. N aked calls a re a high-risk form ofshort selling not backed up by stock position in the company at issue..w

A,Thirty-eight companies w ere placed on a SEC list and circulated amongst brokerages thatplaced the put options on b ehalf of clients. These included among m any others, TDWaterhouse, NFS (subsidiary of Fidelity of Boston), A lex Brown/Deutsche Bank ,Goldman Sachs, and Lehman Brothers. [The San Francisco Chronicle; A P]. In theJanuary 2002 Congressional record, an inform al survey conducted by Levin-Grassleystaffs, revealed that 10 of 22 responding securities and brokerage firms, managedaccounts for 45,000 offshore clients.Below are a few standouts on the SEC list [' *' indicates a WTC tenant; (-x) represents themultiple over average volume]:A irlines: UAL (285x), AM R (60x)Insurance sector: Marsh & McLennan (93x)*, Citigroup (45x), Swiss Re, XL CapitalBrokers: Bear Stearns (60x), Morgan Stanley (27x)*, Merrill Lynch (12x)Compiled from Bloomberg News Report , Tuesday, September 18, 2001Not included on the SE C list, but featu red on the Erlangersqeezeplay.,com rep ort, werehotel chains Marriott, Hilton an d Starwood Ho tels. Most anomalous, were the huge pu toption tradin g spikes placed in only two of the three ma jor US airlines. A lmost always, ifinvestors believe the airline ind ustr y is due to drop, they will short all three majorcarriers. This was not the case here because Delta did not see spikes similar to UAL an dAMR.Analysts also noted that tho ugh the insurance sector was one of the strongest in adepressed stock market, there were huge spikes in put options in Marsh & McLennan an din Citigroup. Marsh & M cLennan, the biggest insurance broker, was a World TradeCenter tena nt with 1,700 em ployees. It also saw, next to UAL, the highest spike in putoptions; thus you have a confluence of facts that, in the minds of many experiencedtraders and experts, amounts to unequivocal evidence of foul play. Clearly traders placedbets based on sure-fire insider prior knowledg e. The odds against this happ eningrandomly or coincidentally are astronomical; probably incalculable.The put options, though they received the bulk of news coverage, were reportedly onlyone of several instrum ents used by the insiders. Suspicious tradin g in 5-year bond s andin oil and gold futures was also noted, and presuma bly investigated.


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f" ''\ and gold futures1 The Associated Press reported on September 22 nd that a German Central B ank studyl stijongly points to "terrorism insider trading" not only in airline and insurance companiesbut also in g old and oil futures. These h e said, "could not be chalked up to coincidence."

Bundesbank President, Ernst Welteke, said that thoug h it would be "extremely difficult toreally verify" but he believed "in one or the other case it will be possible to pinpoint thesource."Unusual high volume in pre-attack 5 year bond tradingThe Wall Street Journal reported on October 2 that the Secret Service had beg un a probeinto an unusually hig h v olume of f iv e-year US Treasury note purchases m ade prior to theattacks. The Treasury note transactions included a single $5 billion trade. The Journalnoted that "Five-year Treasury notes are among the best investments in the event of aworld crisis, especially one that hits the U S. The n otes are prized for their safety and theirbacking by the US government, an d usually rally wh en inv estors flee riskier i nvestments,such as stocks." The v alue of these no tes, the Journal pointed out, has risen sharply afterthe events of September 11.'Last hours' surge of f inancial activity at WTCAccording to a Reuters report of December 16, German data retrieval experts, hired byW TC tenant f irms, were min ing data of f damaged hard disks recovered from th e groundzero. The goal is to discover who was responsible for the movemen t of unu sually largesums of mone y throug h the computers of the W TC in the hours before the attack. PeterHen schel, director of Convar, th e firm responsible, said, "not only the volum e, but thesize of the transactions was far higher than usual for a day like that." Richard Wagner, adata retrieval expert estimated that more than $100 million in illegal transactionsappeared to have rushed through the W TC computers before and during the disaster.The evidence and comments offered by traders, analysts, bankers and others in theimm ediate afterm ath indicates there was, in fact, a carefully planned an d sophisticatedeffort of massive profiteering from the precipitous fall of stocks tha t occurred wh entrading opened followi ng the attack. Thi s is expert documen tation and observationsbased on years of experience. The im plications are absolutely fr ightening. And all themore reason for authorities to pull out all the stops to identify and prosecute thoseresponsible and shut down the g lobal financial network facilitated the most heinous ofcrimes. Un fortunately, that's not exactly what's happened.

'Naysayers' raise suspicions; Enron diverts a ttention from dire N ational security issueMonths have passed since the launch of investigations by the SEC, NYSE, CBOE(Chicago B oard of Options Exchang e), Department of Justice, FBI, Secret Service, CIA,Department of Treasury, and the NS A. And yet there is no ne ws, no suspects, noprosecutions, nothing . There are fears now that early 'naysayers' may hav e let a hot trailto go cold an d allowed the terrorist insiders to cover thei r tracks. D espite all the evidenceto the contrary, the FBI's Dennis Lormel said on October 3, 2001 before Congress that


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there were "n o f lags or indicators" referring to mere "rumors" about the pre-attack insidertrading.The Enron scandal, beg inning in October, follow ed on the heels of the 9-11 attack andsubsequent investigations into Enron began to divide and stretch the limited resources ofthe agencies and regulators involved. The media focus began to shift as well with six oreight Congressional committees holding hearings and providing all sorts of media drama.Congress began to look towa rd remedies to stave off a total crisis of confidence in oureconomic sys tem, and justifiably so. Obviously, the largest bankruptcy in US history,affecting thousands of employees with 401k plans and millions of pensioners, meritsserious attention. Ironically, it may lead them to crack down on the same infras tructure;employed by Enron's Andrew Fastow and terrorist alike.However, a case could be made that the focus on Enron ha s diverted attention away froma matter of far greater national s ecurity. The insiders, possibly the masterminds behindthe suicide attacks, have wa lked aw ay with huge profits fo r their sophisticated pre-attacktrading; estimated by some to be in the billions of dollars. More to the point, they are nowplanning and financing their next attack w ith these 9-11 takings, as yet unmolested by agenuinely aggressive U.S. effort to shut them down.In light of the weighty and compelling evidence, Lormel's insistence there were "no f lagsor indicators" of possible terrorist insider trading, is blatantly wron g or worse, suspect.Most of the inform ation above, including Bloomberg trading charts documenting m assiveput options spikes, was in the public domain prior to his testimony. Yet, Lormel claimedthere was no indication of suspicious trading . W hy then were investiga tions launched byover a dozen nations and 8 or 9 U.S. governm ent agencies, exchanges and commissions?How does on e account fo r supporting comments of the traders and analysts w ith years ofhands-on experience in the markets? vLormel's testimony, coming from an official charged with tracking down, and starvingterrorists of funding to protect Americans does little to inspire confidence; especially inthe wake of the worst intelligence failure in US history. On the contrary, such remarksonly raise very uncom fortab le suspicions and legitimate concern that the forces behindwalls of financial secrecy are so powerful as to thwart or intimidate the highest echelon ofthose responsible fo r executing our nation's war on terrorism. Or on drug trafficking. Oron Enronomic tax evasion and corporate fraud fo r that ma tter.The obvious challenge fo r authorities is to put these sus picions to rest and follow themoney trail to those complicit in the attacks. T o do so, requires investig ators to b reakthrough the veils of bank secrecy in offshore tax havens that may protect terrorists andEnron profiteers alike. Un fortuna tely, thanks to the Bush Administrations w ithdrawalfrom last year's FATF efforts, investigators may be having difficulty in doing so. Andonce again, the trail may have gone cold. And yet it is not unreasonable to expect tha tgiven such a matter of national security, Congress and the authorities would pu ll out ALLthe stops. They would act quickly to force financial entities to divulge the names of thosewho placed the trades in question.


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Surely, 'the most powerful nation in the world' can apply enough pressure on non-cooperating f inancial jurisdictions to force them to reveal the identities of terrorists w hocould attack again at any mome nt. The reality of the threat of more attacks precludes theuse of past excuses and inaction. The Caym an Islands, Nauru , indeed most offsh orehavens lack standing armies. W hile it may be perhaps the hardest of nuts to crack,' theurgency and justifica tion demands w e do w hatever is necessary to do so, at little risk toour nation's armed forces.A real war on terrorism w ould lead to seizures of billions not millions. Nothing close tothis level has yet occurred and the investigation has yielded little in five months.According to a statement by Representative LaFalce on the Congressional Record, theTreasury Department, as of late January had failed to exercise, even once, their newpowers to pressure non-cooperating overseas and offsh ore financial facilities.Investigators into pre-attack trading have not implicated a single insider, terrorist orotherwise. UN efforts are creeping along ineff ectively with many nations failing to fullycooperate or not cooperate at all, as divulged to the press by American UN AmbassadorNegroponte at a February event aired on C-SPAN. There is a distressing and suspiciouspattern here. The administration's will to pursu e this matter is sorely lacking.Another case in point: In December of 2000, the U.S. and Russia co-sponsored a U NSecurity Council resolution to freeze monies linked to designated terrorists. The listincluded five alleged close associates of Bin LadenAmin al-Haq, Saqar al-Jadawi,Ahmad Sa'id Al-Kadr, Sa'd A-Sharif and Bilal bin M arwa n. Inexplicably the U .S.Treasury did not officially place these five on the U.S. blacklist until October 12, 2001.W hy the delay of ten months and who is responsible for it? Naturally, this case raisesfurther suspicion, as it rightly should, regarding the intent and integrity of those chargedwith protecting our national interests and security.Part III of the Making a Killing series w ill examine evidence of how NS A bungling, DoDaccounting and Bush Adm inistration stonew alling could be comprom ising our nationalsecurity, the investigation into 9-11 and our very Constitutional found ation.

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T4 B8 Hence Fdr- Entire Contents- 6-4-03 Kyle Hence Email Fwd by Zelikow to Team 4 and Copy of Making a Killing- Part II 504