Germany probes short-selling link to terror

Published 9/18/2001

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FRANKFURT, Germany (AP) -- Germany's stock market regulator said yesterday it was looking into claims of suspicious short-selling in advance of the terrorist attacks in New York and Washington last week. The statement from the agency came amid market rumors that Osama bin Laden may have tried to profit from stock trading ahead of the attacks. Published reports have said European and U.S. investigators were checking stock movements of three big European reinsurance companies.

Germany's Munich Re, Switzerland's Swiss Re and AXA of France provide coverage for losses by insurers. Industry experts have said losses due to the devastation at the World Trade Center and the Pentagon could reach $20 billion. Sabine Reimer, a spokeswoman for Germany's federal securities regulator, said the agency was looking at shares as part of regular observation of the market. She stressed it was too early to say what shares might be involved or what kind of investigation might result, "but the devastating events of last week make routine examination of shares all the more important."

So far, she said, there has been no need to work with authorities in other countries over the issue. Asked about reports that the terrorists may have tried to profit from the attacks, U.S. Treasury Secretary Paul H. O'Neill, appearing on CBS yesterday, would say only: "As part of our general program to go after these rotten people, we're going to track down every terrorist and expected terrorist and we're going to confiscate their money wherever it is in the world. "And I think we'll have the cooperation of every financial institution in every civilized society in the world. We're going to shut these people down."

Uwe Velten, a spokesman for Deutsche Boerse, the operator of the Frankfurt stock market, said it examined trading in Munich Re stocks and found nothing suspicious on "the decisive days." On the Wednesday, Thursday and Friday before the attacks, Munich Re fell 4 percent, 5 percent and 4 percent, respectively. The share fell 16 percent the day of the attacks. The DAX index was down 3 percent each of the same days and 8 percent on the day of the attack. Munich Re spokesman Rainer Kueppers said Sunday his company knew nothing about the probe.

Short-selling involves offering shares of a stock that the seller does not yet own in the expectation that the investor will be able to buy the stock at a cheaper price than he has promised to sell. AXA said yesterday it has asked France's stock-market regulator to look into whether its shares were the object of short-selling on behalf of bin Laden. The regulator earlier declined to say whether it has opened an inquiry, but stressed the need for extra vigilance.

Swiss Re refused to comment. However, the Swiss stock exchange said it was conducting a routine investigation of its share movements. Ettore Candolfi, a member of the Swiss stock exchange's board, said it always looks into unusual movement in the price -- such as the 17 percent drop after the attacks last Tuesday. "There was a certain rise in volumes in the four days before the fact, but you have to bear in mind that the company also released its first half earnings," the Friday before the attack, Mr. Candolfi said. Given this, trading volume wasn't unusual, he added.

Analyst Chris Hitchings, who follows the insurance industry for Commerzbank in London, said there were "rational explanations" for the price movements without involving bin Laden, noting that Swiss Re's earnings fell short of expectations.

After the attacks, Swiss Re said it alone expects to cover $730 million in losses from the destruction of the World Trade Center, and Munich Re estimated its exposure at up to $903 million.

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-- Martin Thompson (mthom1927@aol.com), September 18, 2001