A British hedge fund manager has revealed how, in the 15 minutes after the first plane hit the World Trade Center on 9/11, he was able to short sell key shares, thereby making a financial profit from the tragedy that was unfolding.

In part two of the BBC documentary series The City Uncovered with Evan Davis, which was broadcast on Wednesday 21st January, David Yarrow, the managing director of Clareville Capital, described how he made significant profits following the September 11 attacks, as well as the 2004 Madrid train bombings and the July 7, 2005 London bombings.* Presenter Evan Davis began the segment: "On 9/11, David Yarrow was watching television in a hotel room in America. In the minutes after the first plane hit the World Trade Center, his trading instincts kicked in. Seeing the market was about to plummet, he shorted key vulnerable shares, like airlines." (Short selling is a technique used by investors who try to profit from the falling price of a share. It involves selling shares you don't already own, but instead only borrow, with the intent of purchasing them at a later date at a hopefully lower price, thereby netting a profit.)

Yarrow then appeared, saying: "On 9/11, between the two planes, in those 15 minutes, we did a sufficient amount of remedial work on the portfolio that by the time the second plane went in, the fund, which we can always see the price of, actually started ticking up, and ticking up, and did so for the next 10 or 12 days, because we were in a position that we could suppress risk. And the same with the Madrid bombings, and the same with the dreadful London bombings in the summer four years ago. So there is no doubt that right at the cornerstone of what we do is this concept that whatever happens, we should be in a position to turn round to investors and say their money's safe."

Evan Davis concluded the segment by claiming, "David Yarrow's reactions on 9/11 are a perfect example of how some hedge funds seek to react fast to events." But surely claims like those made by Yarrow ought to be probed more deeply? For instance, it could be checked whether Yarrow was short selling the shares of all airlines--or all U.S. airlines--or whether he was able to single out American Airlines and United Airlines at a time when it had not yet been reported that these were the two airlines that had been targeted.

The need to investigate more closely reports of companies profiting from 9/11 has been highlighted recently by the French rogue trader Jérôme Kerviel, who claimed that Société Générale--the bank that employed him--"made a fortune" that day. In an interview with the newspaper Le Parisien, Kerviel said: "The best trading day in the history of Société Générale was September 11, 2001. At least, that's what one of my managers told me." He added: "I heard it was the best day's trading in the bank's history. I don't know how much they made, but apparently the gains were colossal." (Evening Standard, January 22, 2009; The Times, January 23, 2009.)

* Part two of The City Uncovered with Evan Davis, "Tricks with Risk," is available to watch on the BBC website until February 4 (although you need to be in the UK to be able to view it):
http://www.bbc.co.uk/iplayer/episode/b00h5t60/b00hhtjc/The_City_Uncovered_with_Evan_Davis_Tricks_with_Risk/
The key section of the interview with Yarrow begins 28 minutes 58 through the program.