Israel investigating allegations that traders profited off foreknowledge of October 7 Hamas attacks

Israeli officials are investigating allegations that some traders made substantial stock market profits on the basis of advance knowledge of the Oct. 7 Hamas terror attacks.

Authorities acknowledged a probe was under way following the Dec. 3 release of a damning report titled, "Trading in Terror?" wherein two university law professors indicated that "days before the attack, short selling of Israeli securities on the Tel Aviv Stock Exchange increased dramatically."

In their 66-page report, SEC commissioner Robert Jackson Jr., a professor at New York University, and Columbia University professor Joshua Mitts noted that much attention has been paid to how Hamas may have financed the attacks, but "little attention has been given to trading in securities markets in advance of October 7—an important omission given the relative sizes of the cryptocurrency and securities markets."

Five days prior to the slaughter of at least 1,200 people by Hamas terrorists, "nearly 100% of the off-exchange trading volume in the MSCI Israel ETF ... consisted of short selling."

The researchers highlighted how short selling in early October greatly exceeded the short selling that occurred during other times of crisis, such as the financial crisis, the 2014 Israel-Gaza war, and the COVID-19 pandemic. They also ruled out seasonality and random chance.

Short selling entails borrowing a security, selling it on the open market, then buying it back later for significantly less money. Short sellers profit from a drop in a security's price.

"Days before the attack, traders appeared to anticipate the events to come: on October 2, short interest in the MSCI Israel Exchange Traded Fund (ETF) suddenly, and significantly, spiked," said the report. "And just before the attack, short selling of Israeli securities on the Tel Aviv Stock Exchange increased dramatically."

"For one Israeli company alone, 4.43 million new shares sold short over the September 14 to October 5 period yielded profits (or approximates avoided losses) of 3.2 billion NIS [$862 million] on that additional short selling," said the report.

Jackson and Mitts observed suspicious patterns going back to at least April, when Hamas was reportedly beginning to plan its attacks.

The duo determined that "traders informed about the coming attacks profited from these tragic events" by short selling on the U.S. and Israeli stock exchanges. While the researchers could not ascertain who the traders were, Israeli authorities appear keen to find out.

The Israel Securities Authority told Reuters, "The matter is known to the authority and is under investigation by all the relevant parties."

Reuters indicated a spokesman for the securities regulator would not elaborate and that Israeli police did not provide comment.

Jonathan Macey, a professor at Yale Law School, told CNN that "regulators appear to lack the ability to discover the entities responsible for this trading, which is unfortunate."

Mitts indicated that neither he nor his co-author Jackson are suggesting Hamas necessarily had been making the trades. Rather multiple actors, individual, corporate, governmental and/or terroristic may have acted upon advance insights into Hamas' plans.

The U.S. Securities and Exchange Commission told CNN it "does not comment on the existence or nonexistence of a possible investigation." A spokesman for the Financial Industry Regulatory Authority said the same for his regulator.

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