We provide direct evidence of market manipulation at the beginning of the
financial crisis in November 2007. The type of manipulation, a "bear raid,"
would have been prevented by a regulation that was repealed by the Securities
and Exchange Commission in July 2007. The regulation, the uptick rule, was
designed to prevent manipulation and promote stability and was in force from
1938 as a key part of the government response to the 1928 market crash and its
aftermath. On November 1, 2007, Citigroup experienced an unusual increase in
trading volume and decrease in price. Our analysis of financial industry data
shows that this decline coincided with an anomalous increase in borrowed
shares, the selling of which would be a large fraction of the total trading
volume. The selling of borrowed shares cannot be explained by news events as
there is no corresponding increase in selling by share owners. A similar number
of shares were returned on a single day six days later. The magnitude and
coincidence of borrowing and returning of shares is evidence of a concerted
effort to drive down Citigroup's stock price and achieve a profit, i.e., a bear
raid. Interpretations and analyses of financial markets should consider the
possibility that the intentional actions of individual actors or coordinated
groups can impact market behavior. Markets are not sufficiently transparent to
reveal even major market manipulation events. Our results point to the need for
regulations that prevent intentional actions that cause markets to deviate from
equilibrium and contribute to crashes. Enforcement actions cannot reverse
severe damage to the economic system. The current "alternative" uptick rule
which is only in effect for stocks dropping by over 10% in a single day is
insufficient. Prevention may be achieved through improved availability of
market data and the original uptick rule or other transaction limitations.