September 10, 2001: Sovereign Wealth Fund Buys a Huge Amount of Treasury Notes, Which Will Soar in Value after 9/11

A major sovereign wealth fund buys an unusually large amount of two-year Treasury notes, which will significantly increase in value in response to the terrorist attacks on September 11, thereby making the buyer millions. The incident will only come to light in spring 2014 when an employee at the bank that deals with the purchase describes it to James Rickards, a bestselling author, economist, and investment adviser. This person, according to Rickards, is “one of the most seasoned government securities traders at one of the biggest Wall Street banks” who specializes in providing services to “the largest customers in the world,” which include “central banks, sovereign wealth funds, and huge pension funds managed by states and major banks.”
Fund Wants to Buy $2 Billion of Treasury Notes – While he is at a customer outing today, the trader receives a frantic phone call from his sales assistant, who is covering the desk while he is away. The sales assistant tells him that a major sovereign wealth fund has called to place an order to buy $2 billion of two-year Treasury notes. “Even by the standards of large bank dealers, an order for two billion dollars of notes in one transaction is almost unheard of,” Rickards will later comment. However, Rickards will note, the sovereign wealth fund that placed the order is “so large that counterparty credit [is] not an issue.” The huge trade is therefore executed and settled at the end of the business day. The customer that makes the purchase will never be heard from again by the trader.
Purchase Is ‘a Clear-Cut Case of Insider Trading’ – After the attacks on September 11, the value of the two-year Treasury notes will soar in a “flight to quality” in the face of geopolitical uncertainty. Consequently, the sovereign wealth fund will make millions of dollars from its purchase. Furthermore, unlike the stock exchange, the US Treasury market will stay open after the attacks and so the sovereign wealth fund will be able to collect its winnings without difficulty. Rickards will describe the transaction as “a clear-cut case of insider trading.” However, in the investigations into possible insider trading before the attacks that follow 9/11, attention will be focused on the stock markets, and the Securities and Exchange Commission will ignore trading in the US Treasury bond market. Consequently, “the sovereign wealth fund with the advance knowledge of the 9/11 attack was able to get away scot-free,” Rickards will write. [Business Insider, 4/18/2017] Sovereign wealth funds are “pools of assets owned and managed directly or indirectly by governments to achieve national objectives,” according to the Organization for Economic Co-operation and Development. [Blundell-Wignall, Hu, and Yermo, 1/2008 ] The government that owns the sovereign wealth fund involved in the incident described by Rickards will be unstated.