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Paul Mahoney to Deliver Raben Lecture, "Searching for Market Manipulation in the Pre-SEC Era," May 7

Paul G. Mahoney '84, academic associate dean, Brokaw Professor of Corporate Law, and Albert C. BeVier Research Professor at the University of Virginia School of Law, will give the John R. Raben Fellowship Lecture, titled "Searching for Market Manipulation in the Pre-SEC Era," in the Faculty Lounge, Wednesday, May 07, 2003, 12:30 p.m. - 2:00 p.m. The talk is free and open to the public. Lunch will be provided. If you wish to attend, please RSVP to Marianne Dietz ( in the Yale Law School Dean's Office.

Paul Mahoney's Raben lecture will take a close look at certain investment practices in the 1930s that were the impetus for much of the current regime of securities regulations. According to Mahoney, "The Congress during the 1930s, which was . . . when all of the main federal securities statutes were written, believed that market manipulation was quite rampant in the equity markets. And the principal reason they believed that was the existence of something known as a stock pool."

Stock pools were simply agreements among investors to trade jointly in the same stock. The belief at the time was that the stock pools were attempting to create an upward momentum in a stock's price, in order to draw in na? investors, who would then drive the price of the stock higher. In theory, stock pools could then make money by selling against this trend.

"Whether trading like that could work has always been theoretically problematic," says Mahoney. He looked at the issue in a 1999 paper, titled "The Stock Pools and the Securities Exchange Act," and found that the evidence from stock returns in the period was not consistent with manipulation.

Since 1999, however, Mahoney says that the field of behavioral economics has presented new evidence that investors can be easily fooled. "That has led me to become more interested in taking a fresh look at the stock pools," says Mahoney.

In his talk at Yale Law School, Mahoney will discuss this current work, which takes into account fresh data and new theoretical insights. He and his co-author, Jianping Mei, associate professor of international business finance at the NYU Stern School of Business, are constructing the first comprehensive database of stock prices from the pre-SEC era. This is allowing them to look more accurately at the returns on stock pools. They will also incorporate a better understanding of the dynamic relationship between trading volume and stock price into their analysis.

Though Mahoney's talk will look back to the 1930s, he argues that it has relevance to the present era. Many of the securities laws enacted in the 1930s are still in effect. If the premise for those laws turns out to be false, Mahoney argues that we should reconsider some regulations, such as the restrictions on investment banks trading in securities they are underwriting. In addition, the story of whether investors were fooled, and whether the stock pools could manipulate stock prices is "relevant to our current understanding of how investors behave," says Mahoney.