Old Money: Plungers and terrorists

Short sellers and their schemes have a murky past. From the Dutch East India Company to Borussia Dortmund.

  • By Richard Roberts
  • 10 May 2017
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by Professor Richard Roberts, King's College London

The surest way to make money is knowing the future, and the surest way to that insider information is to make it happen. 

Hence the alleged actions of suspect Sergej W, who is accused of bombing the Borussia Dortmund football team bus to profit from a fall in the club’s share price through put options. 

Ahead of the blast he bought 15,000 puts at a cost of €79,000, using a consumer loan taken out the week before. From an upstairs room at the team’s hotel, he triggered a roadside bomb as the bus passed and then traded Borussia Dortmund puts over the internet as investigators combed through the wreckage outside. Apparently he anticipated a profit of €4m.

Short selling of equities originated in Amsterdam in dealings in shares of the Dutch East India Company, the earliest modern corporation, established in 1602. 

In 1609, an opportunistic founding shareholder, Isaac Le Maire, organised a concert party to short the company’s shares driving down the price — the first ever short trade. Then he and his confederates spread negative rumours to further depress the price. 

The sellers had one year to cover their sales with shares purchased, they hoped, at lower prices. The company complained about the "dirty scheme" to the authorities which banned short selling, the first of many short selling restrictions down the years, and instigated actions for fraud. 

The sellers tried to settle their sales by negotiation, but many were bankrupted. Le Maire’s outstanding interests in the company were frozen and he died much impoverished.

Shorts were a feature of Wall Street stock trading from its beginnings in the 1790s.

Bear's market


Major Wall Street plungers were celebrity figures, as they are today, who made and often lost fortunes; of course, Wall Street’s plungers did not control the future (or often know when to quit). 

They included Jacob Little, the "Great Bear", Wall Street’s first great speculator who went bust four times, and Jesse Livermore, the "Boy Plunger", who made his first millions shorting stocks in the panic of 1907 (until J Pierpont Morgan told him to stop). 

Livermore went bust in 1912 but then made another mint selling short in the 1920s and the 1929 crash; blamed by stockholders for ruining the bull market, he hired a bodyguard against the death threats. When he went bust again in 1934, his wife walked out. His new wife had already outlived four husbands — all committed suicide; and Livermore shot himself in 1940.

President Hoover also blamed short sellers for the Wall Street crash and asked the Senate Committee on Banking and Currency to conduct an inquiry. 

This featured public hearings in 1933 that saw top Wall Street financiers cross-examined by the committee’s counsel, Ferdinand Pecora, resulting in damaging disclosures about bankers behaving badly. 

They included revelations that while participating in the bankers’ consortium formed to buy stock to support prices in the early days of the crash, Albert Wiggin, chairman of Chase Bank (a forerunner of JP Morgan Chase), was personally shorting the stocks of his bank. 

He even sold short 5,000 Chase shares to the consortium trying to bolster prices; and the bank lent him the funds to buy back the stock. 

Wiggin was disgraced, as were the heads of Citi and the NYSE. The revelations contributed to the public and regulatory backlash, including in 1938 the ‘uptick rule’ allowing shorting only when a stock’s price was rising (in force until 2007).

Terrorist shorting made its modern debut with the 9/11 attacks. 

Bin Laden was informed of the date of the attacks on September 5, providing members of his circle a trading window. From September 5 put options many times the usual volumes were purchased on airlines and Twin Tower occupants: United Airlines, 4,744 puts, six times the normal level; American Airlines, 4,516, 285 times normal; Merrill Lynch, 12,215, 48 times normal; and Morgan Stanley, 2,257, 80 times normal. 

Allowing that some of the activity was is called "signal amplification effect" purchases by traders imitating the unusual movements, the trades may have generated an estimated $16m profits for the terrorist plungers. 

Perhaps this was the inspiration for the Dortmund bus bomber. 

It certainly alerted the authorities to terrorist insider trading; it didn’t take long to finger Sergej W through his trades. But chances are he won't be the last terror plunger — a dark new twist on the greed and fear which has always inspired markets.

  • By Richard Roberts
  • 10 May 2017

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 415,838.72 1590 9.03%
2 JPMorgan 379,647.36 1732 8.25%
3 Bank of America Merrill Lynch 359,324.90 1302 7.81%
4 Goldman Sachs 267,102.04 920 5.80%
5 Barclays 266,010.35 1070 5.78%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 45,073.36 191 6.67%
2 Deutsche Bank 37,312.62 138 5.52%
3 BNP Paribas 36,204.20 208 5.36%
4 JPMorgan 34,040.23 112 5.04%
5 Bank of America Merrill Lynch 32,958.96 107 4.88%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 JPMorgan 22,398.41 104 8.67%
2 Morgan Stanley 19,092.40 102 7.39%
3 Citi 17,768.49 110 6.88%
4 UBS 17,693.89 71 6.85%
5 Goldman Sachs 17,256.05 98 6.68%