Study Claims Hamas Made Millions By Short-Selling Ahead Of Oct 7 Attack

Days before the October 7th Hamas attacks, there was a notable increase in bets against the value of Israeli companies. This suggests that some traders might have possessed advanced knowledge of the impending terror attack and capitalize on it, according to newly released research on Monday. The preliminary findings, not yet subjected to peer review, come from law professors at Columbia University and New York University. Meanwhile, the Tel Aviv Stock Exchange said on Tuesday that the claims are inaccurate, as there were no unusual trading ahead of the attack. 

The research outlines a "significant" and "unusual" surge in short selling, a method used to bet against the value of a security, in the most widely used fund linked to Israeli companies, occurring five days before the attacks.

Short selling is a trading tactic designed to capitalize on the anticipated decline in the value of an asset. In this strategy, the seller effectively "borrows" security, selling it on the open market to repurchase it later at a reduced price, thereby securing a profit from the price difference.

The research paper reveals that the bets against the MSCI Israel Exchange Traded Fund (ETF) in the days leading up to the October 7 attack were significantly higher than the levels of short selling observed during the Covid-19 pandemic, the 2014 Israel-Gaza war, and the 2008 global financial crisis, CNN reported.

"Our findings suggest that traders informed about the coming attacks profited from these tragic events," the authors wrote.

Professor Jonathan Macey of Yale Law School told CNN that the paper is "shocking". 

"The evidence that informed traders profited by anticipating the terrorist attack of October 7 is strong," he said. "Regulators appear to lack the ability to discover the entities responsible for this trading, which is unfortunate."

The paper titled "Trading on Terror?" was written by former SEC commissioner Robert Jackson Jr., who is currently a professor at NYU, and Columbia law professor Joshua Mitts.

The research paper says that on October 2, five days before the surprise attack by Hamas on Israel, "nearly 100% of the off-exchange trading volume in the MSCI Israel ETF ... consisted of short selling."

"Days before the attack, traders appeared to anticipate the events to come," the professors wrote.

One of the authors, Mitts, told CNN that due to the limited nature of public trading data, he believes it is "highly likely" there is more trading that went on behind the scenes. "We are only seeing the tip of the iceberg," Mitts said. "There is a lot more out there that we can't pick up on but that regulators should be looking at."

The authors are "very confident" that the trading activity is "exceptional" and "extraordinary" when compared with a decade of trading. 

However, the traders are not certain about the location of the parties making trades. 

"Linking it back to Hamas is very speculative and we're not suggesting this," Mitts said, adding there are a wide range of possibilities including the potential that someone "overheard something" and acted on it.

Meanwhile, the Tel Aviv Stock Exchange (TASE) said the authors miscalculated because share prices are listed in agorot, which are similar to cents and pence, rather than shekels - putting the potential short sale profit at just 32 million shekels, reported Reuters. 

In a separate statement, the Israel Securities Authority(ISA) said that in the days preceding the Hamas terrorist attack, no significant trading abnormalities which would have necessitated further investigation were detected.

"The ISA's examinations found, inter-alia, that the average short balances for shares traded on the Tel-Aviv Stock Exchange declined during the period preceding October 7th," the regulator said in a statement.