SEC wants data-sharing system
Network of brokerages would help trace trades by terrorists
Friday, October 19, 2001
In an effort to streamline its probe of suspected terrorism-related financial activities, the Securities and Exchange Commission yesterday asked securities firms to participate in a novel information-sharing system involving key members of the financial community.
The unprecedented move, while consistent with other appeals to the financial services industry in the wake of the Sept. 11 attacks, appears to be an important refinement of federal efforts to follow the money trail.
The SEC previously has declined to comment on the substance and scope of its investigation, but it is apparent that potentially large numbers of trades in securities of companies affected by the attacks are believed to merit close examination.
Such an undertaking would be impossible without private-sector cooperation in the United States, as well as the cooperation of European securities regulators.
The SEC's action yesterday came after a period of official silence about its investigative activities. It also followed newspaper reports -- including five in The Chronicle -- about suspicious equity- and bond-trading near the time of the terrorist attacks, especially in shares of companies directly affected by the disasters, AMR Corp. and UAL Corp., parents of American and United airlines, which together lost four aircraft.
On Oct. 2, Canadian securities officials confirmed that the SEC privately had asked North American investment firms to review their records for evidence of trading activity in the shares of 38 companies, suggesting that some buyers and sellers might have had advance knowledge of the attacks.
The proposed system, which would go into effect immediately, effectively deputizes hundreds, if not thousands, of key players in the private sector.
SEC spokesman John Heine told The Chronicle that the agency had thought very carefully about the step it took.
"We felt that it was a prudent decision," Heine said, "in part because we ask people in the securities industry for information all the time. We don't think it's ever been done on this scale, but it's fairly routine for us to ask for information."
In a two-page statement issued to "all securities-related entities" nationwide, the SEC asked companies to designate senior personnel who appreciate "the sensitive nature" of the case and can be relied upon to "exercise appropriate discretion" as "point" people linking government investigators and the industry.
The SEC asked the industry to provide the names, titles, phone numbers and e-mail addresses of such designees by Oct. 26.
It said those chosen as point people would eventually receive access to a "control list" containing confidential information about transactions, individuals, relationships and entities identified by the FBI and other law- enforcement agencies in the probe.
They will then be asked to check their firms' records to determine what information they have about the names and transactions identified.
"Because the control list contains confidential information," the SEC said, "we ask that you disseminate the information within your institution only on a need-to-know basis."
Margaret Draper, spokeswoman for the 700-member Securities Industry Association in New York, said yesterday that the industry welcomed the SEC action, although it potentially raised concerns about time and manpower.
"The industry has been cooperating in this investigation since the beginning," she said. "This is another move to make it more efficient. They're asking us to have one point person. We appreciate that it's one person. That's good for the firms. It makes the process more efficient."
Draper said it was impossible to generalize about the information-sharing methods used to date because the firms have been handling government information requests differently. But she said it was generally felt in the industry that "there was a need for coordination" because firms have been inundated with requests from various investigators.
She said there was no reason to believe the privacy of firms' clients would be compromised by the SEC's latest action.
Alan Sorcher, staff attorney for the SIA, said that he doubted the formalization of industry involvement raised new legal questions for people already covered by federal securities laws and the half-dozen federal money- laundering laws that have been in existence since 1970.
"Our members are subject to a number of rules and regulations, so I don't think what the SEC has done is unusual," Sorcher said.
Glen Mathison, a spokesman for Charles Schwab & Co. in San Francisco, said Schwab is reviewing the SEC's new request and would not comment on it immediately.
"If we have issues with what the SEC is doing," Mathison said, "we're going to discuss it with them and not publicly. We just received this."
Amanda Duckworth, spokeswoman for Thomas Weisel Partners, a San Francisco merchant banking firm, said Weisel had not been previously asked to give information to terrorism investigators, but expected to "fully cooperate" with yesterday's SEC request.
FMR Corp. spokeswoman Anne Crowley, said her firm -- which owns the giant Fidelity family of mutual funds in Boston -- has already provided "account and transaction" information to investigators, and had no objection to the new procedures announced yesterday. Crowley declined to describe the nature of the information previously shared with the government.
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