Securities and Exchange Commission Historical Society

In the Midst of Revolution: The SEC, 1973-1981

Whose Revolution Is It?

Federal Securities Code Project

"Lou gathered 15 to 20 experts, all strong-minded (some might say opinionated) lawyers, in the same room for many lengthy meetings on a series of complicated subjects and difficult issues, and yet maintained leadership, sustained a remarkable camaraderie, and in the end obtained a result in which all joined."

- February 1998 "In Remembrance of Louis Loss," Insights – Richard B. Smith

During the 1970s, securities law experts in academia, Congress and the SEC sought to create a coordinated theory of market regulation that would expand, but not supplant the long-held SEC principle of full and open disclosure. The attempt to create federal minimum standards for state corporation laws was taken on in the 1960s and 1970s by the American Law Institute, with its proposal for a Federal Securities Code.

Louis Loss, noted securities expert whom some describe as the intellectual father of modern securities law, became the principle drafter of the code.(66) Before his appointment, Loss had experienced a long SEC career, serving as staff attorney (1937-1944), Chief Counsel of the Division of Trading and Exchanges (1944-1948), and as Associate General Counsel (1948-1952).

The goals of the project were to codify the mass of securities law that had developed since 1900, to impose an order and coherence on the law, consistent with Loss's idealized vision that would establish securities law as a clear legal field with understandable, reasonable and responsible rules promoting predictable results for the capital marketplace.(67)

Part of the problem with the codification of federal securities law was that the process of codification was in some sense inconsistent with the extraordinarily rapid and monumental changes that were occurring in the structure of the securities marketplace since the 1930s.

The regulatory strategy of the SEC, taken from the legislation that created the agency and gave it authority, seemed increasingly out of touch with those changes, especially a growing body of economic theory, including an economic theory calling for an analysis of the cost versus benefit of particular securities regulation, that called into question the very desirability of government intervention.(68)

An example of this can be seen in the area of insider trading regulation, and the complicated and conflicted story of how, during the 1970s, the SEC and the courts fought over the rationale and legality of that regulation. Once again, as with the issue of corporate governance, resistance to a proposal for a federal code of conduct came from critics who relied on new economic theories as well as principles of federalism which suggested that state law could more properly establish rules for corporate board behavior and inside trader conduct.

The American Law Institute Project's contribution to the field of securities law cannot be underestimated. Inside the SEC, battles over the nature and authority of government regulation to promote marketplace competition and protect investor safety joined in the 1980s with a cost/benefit analysis of the value of government regulation.

Although the Federal Securities Code was not adopted, the importance of stating current law and doctrine with the goal of increasing understanding would permit a new generation of securities lawyers inside and outside the SEC to address the proper role of regulation of the marketplace.

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(66) Loss ; Donald C. Langevoort, The Education of a Securities Lawyer, 80 NW. U. L. Rev. 259 (1985)

(67) Langevoort

(68) Karen W. Arenson, "S.E.C. Head Cites Shift on Securities Industry," The New York Times, November 30, 1979, D1

Related Museum Resources


December 15, 1997
document pdf (Courtesy of Paul Gonson)
January 16, 1998
document pdf (Courtesy of Paul Gonson)
February 1998
document pdf (Courtesy of Paul Gonson)
May to June 1998
document pdf (Courtesy of Paul Gonson)
May 12, 1998
document pdf (Courtesy of Paul Gonson)

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