Work of a Lifetime: Louis Loss and the Federal Securities Code

Few have been as important to the history of securities regulation in the United States than Louis Loss (1914-1997). Consider, for example, that Loss is credited with coining the term “Securities Regulation” in titling the first edition of his work on the subject in 1951. But if his treatise was his greatest accomplishment, a close second was Loss’s commitment over a lifetime to the enormous task of creating a federal securities code.

The New Deal securities laws were individual solutions to particular problems—six interrelated, but not integrated statutes. Something in Louis Loss wished to create order out of this chaos. He began three years after joining the Securities and Exchange Commission, as part of a four-man staff committee tasked with reviewing and rationalizing the statutes. His committee submitted some 70 recommendations, but by the time hearings began, Congress was busy with World War II. Loss joined the Harvard faculty in 1952 but did not forget his old project. Two years later, Loss testified as Congress considered revising several securities acts. He urged that the effort “be viewed not as an end but as the beginning of a much-needed reform.” (1954_0319_LossSecuritiesActs)

That effort came to nothing, but Loss was encouraged when James Landis recommended codifying the securities laws to president-elect Kennedy, and again when the Special Study on Securities Markets, as he informed Chairman William Cary, “emphasize[d] the need for general codification.” (1963_0425_LossCary.pdf)

A defining moment came with publication of the 1966 article “‘Truth in Securities’ Revisited.” Milton Cohen’s chief insight was that the 1933 and 1934 Acts were backwards—that companies should be registered first, with securities offerings then referring back to those original documents. This idea of “company registration” became central to Loss’s future efforts. (Ruder OH, 13)

Those began in the fall of 1966 with what David Ruder remembered as a meeting between “all the great securities lawyers in the country” who gathered to discuss the codification of the six securities statutes. By 1968 the project was underway, sponsored by the American Law Institute of the American Bar Association with Louis Loss as “Reporter.” (Ruder OH, 12)

Loss was more than a reporter, however; he was the linchpin of the effort, taking in ideas from scholars and state and federal regulators, but mostly drawing from his own encyclopedic knowledge of securities law. As A.A. Sommer recalled:

“For endless hours he patiently—for the most part—conducted arcane, sometimes annoyingly lengthy, discussions of the new code. Silly suggestions he would dispose of with a quick verbal flick. More serious but nonetheless lightweight suggestions he would blow down with his magnificent artillery—his learning and his intellect… . It was entertainment of the first order to watch the master at work. It was like watching Michelangelo carving David.” Remarks of A.A. Sommers at the Dedication of Louis Loss Library, May 12, 1998

Loss kept carving for more than a decade, but in the end his David never emerged from the studio. Several things doomed the project. Most fundamentally, although nearly everyone in the securities bar recognized that the Federal Securities Code was superior to prevailing law in many respects, everyone could name many ways in which it was not. The SEC Staff pushed the Commission to insist on a long list of revisions. But if Loss accepted too many of them, the ABA threatened to withdraw its sponsorship. (1979_1120_CohenWilliams)

Years later, Chairman Harold Williams recalled feeling badly for Loss, but in 1979 he was mostly worried about the potential damage that reopening all of the securities laws could do to the commission. The best result he decided, would be for the “code to be a catalyst” for limited change. (Williams OH, 16) (1979_1203_WilliamsCommission)

Loss’s life project landed in Congress in 1980, precisely the wrong time. In the age of Reagan, legislators were more interested in tearing down than building new regulatory edifices. In the end though, Loss’s project may have served the purpose that Williams hoped it would. Only two years later the SEC adopted integrated disclosure. By taking a few leaves from Louis Loss’s 700-page code, the Commission fulfilled a part of his lifelong objective but also ensured that no one would ever pursue such an ambitious objective again.

Check out the documents, oral histories, and programs that keep Louis Loss’ legacy alive in the SEC Historical Society archive.

Papers

March 19, 1954

Statement by Louis Loss, Professor of Law, Harvard University

September 12, 1979

Memo from the Office of General Counsel and Division of Enforcement to the Commission on the American Law Institute (ALI) Federal Securities Code

September 19, 1979

Memo from Beverly to Phil Loomis Regarding American Law Institute (ALI) Federal Securities Code

September 26, 1979

Statement of Harold Williams Regarding American Law Institute (ALI) Proposed Federal Securities Code

November 20, 1979

Letter from Milton Cohen to Harold Williams Transmitting his Letter to Louis Loss Regarding American Law Institute (ALI) Proposed Federal Securities Code