Probe into pre-attack short-selling linked to Hamas strikes in Israel

Israeli authorities are investigating claims that investors may have had advance knowledge of the Hamas attack on Israel on October 7 and used this information to profit through short-selling Israeli shares.

This inquiry follows a study by US law professors Robert Jackson Jr. and Joshua Mitts, revealing unusual trading patterns prior to the attack.

The study, titled ‘Trading on Terror?’, found a significant increase in short-selling, a strategy where investors bet on the decline of a stock’s price, in the Israel Exchange-Traded Fund (ETF) days before the Hamas strike. Specifically, on October 2, the number of shorted shares in the ETF surged from around 2,000 to over 227,000, a pattern that mirrored earlier trading activities in early April when Hamas was reportedly planning an attack.

“And just before the attack, short-selling of Israeli securities on the Tel Aviv Stock Exchange (TASE) increased dramatically. Taken together, our evidence is consistent with informed traders anticipating and profiting from the Hamas attack,” the authors wrote in their 66-page report, but they emphasized the “preliminary nature” of the paper.

This data, sourced from the Financial Industry Regulatory Authority (FINRA), indicates a possible anticipation of market downturn due to the impending attack.

Further, the study highlights the use of cryptocurrency by pro-Palestinian groups, including Hamas, for fundraising purposes. Between August 2021 and June 2023, Hamas, Palestinian Islamic Jihad, and Hezbollah reportedly received over $134 million in cryptocurrency donations, with Hamas alone receiving $41 million.

The research delves into specific patterns observed in early April, coinciding with initial reports of Hamas planning its attack on Israel. These patterns were mirrored on October 2, suggesting a correlation between the impending attacks and the trading activities.

Additionally, the study examined trading activities on both the Tel Aviv Stock Exchange and U.S. exchanges. While no aggregate increase in shorting of Israeli companies was observed on U.S. exchanges, a notable uptick in short-selling was documented on the Tel Aviv Stock Exchange, especially in the days leading up to the October 7 attack. For instance, Israel’s largest bank, Leumi, saw a short-selling of 4.43 million new shares from September 14 to October 5, yielding profits of roughly 3.2 billion shekels ($862 million).

Israeli officials are now scrutinizing these trades to determine if they constitute insider trading, given the timing and scale of the short-selling activities in relation to the Hamas attack, which has claimed over 1,200 lives.