SEC Follow Up Exhibits Part C SEC_OEA_FCIC_001760-2501

OEA DRAFT – INTERNAL
Therefore, examining the data for patterns of fails that disappear after 4 consecutive
settlement days is a simple way to detect gaming. 1
We note that a web page article by Mark Mitchell on October 2, 2008 suggests that the
type of threshold list manipulation being discussed in this memorandum is widespread. 2
He also suggests a number of stocks and time periods where this threshold list
manipulation is occurring. Specifically, he mentions Bear Stearns, Lehman, Morgan
Stanley, Goldman Sachs, AIG, Freddie Mac, Fannie Mae, Merrill Lynch and Citibank.
As a first cut, we examine aggregate fails in these stocks to see if there is any evidence to
support Mark Mitchell’s claims of repeated threshold list manipulation in these stocks. In
summary, there is no evidence of threshold list manipulation in the 9 specific stocks
Mark Mitchell mentions in his article.
We plot fails as a percentage of shares outstanding in each of the 9 stocks in Figures 1 to
9 and visually look for any systematic patterns that would indicate threshold list
manipulation. Specifically, we are looking for repeated patterns of 4 days about the 0.5%
of shares outstanding threshold, a day or two below 0.5% of shares outstanding, and then
back above 0.5% of shares outstanding. After each figure, we provide a short discussion
of the results.
1 If we had found any repeated patterns of fails consistent with threshold list manipulation, we could have
further examined the dominance of particular clearing firms in establishing those patterns. However, since
we found no suspicious patterns in the nine firms examined, further investigation is not warranted.
2 We should also note that Mark Mitchell’s web site was founded by Patrick Byrne, CEO of
Overstock.com. Among other things, the web site suggests that failing to deliver is a crime.
2 3/5/2010