The Big Squeeze

If I said "section 10(b) of the '34 Act," you'd know what I was talking about, but if I mentioned section 78j you probably wouldn't be sure, right? They're the same section, of course, but when securities law professionals talk about the '34 Act's anti-fraud provision they say 10(b), a designation that comes from chapter 404 of the laws of 1934 (48 Stat 881), and not 15 USCA 78j. The reason no one uses the United States Code citations for the securities laws is because they are so damned convoluted (the Trust Indenture Act, for example, is 15 U.S.C. § 77aaa – 77bbbb). Unfortunately, 10(b) isn't good enough for the Blue Book so sometimes we need to find the full citation.

The "find a securities document" tool on the Westlaw Securities Practitioner page will translate for you, but this post isn't about how to find the right citation, its about how this mess happened in the first place.

The United States Code is maintained and updated by a House department called the Office of the Law Revision Counsel (OLRC). They are also responsible for enacting the Code into positive law. The OLRC originated during what I like to call the “codification wars” of the nineteen-twenties. In 1919 Colonel E. C. Little, Chairman of the House Committee on the Revision of Laws, embarked on a project to codify federal statutes and enact them into positive law. Col. Little’s completed codification, organized into 60 titles, was passed by the House in 1920. It went on to the Senate and was killed. Why, the Senators wondered, would Little want to repeat the disaster of 1873? In 1873 Congress repealed all existing federal statutes and replaced them with a codification. The Revised Statutes of 1873 contained so many errors and that it had to be amended immediately in 1875 and again in 1877. The House was undeterred by the Senate’s qualms. It re-proposed and passed Col. Little’s codification twice more. Upon its second presentation, the Senate Committee on the Revision of Laws reported that the bill had 600 errors, omissions, and inaccuracies. The Senate Committee proposed a compromise in the form of a joint commission to revise the laws.

In the period between the 1873 codification and the 1919 attempt, commercial publishers had filled the gap. Both West and Thomson produced useful and frequently-updated codifications. The Senate asked these publishers to assist in producing an official codification. The resulting document, shortened to 50 titles, passed the House in 1926. The Senate remained unconvinced and refused to enact the bill. In the end, the Senate couldn't be convinced to replace existing statutes with a potentially error-filled codification. Instead, the Senate amended the bill to provide that the codification was “prima facie” evidence of the law and that existing statutes remained in force.

According to Peter LeFevre, the present Law Revision Counsel, this situation was meant to be a temporary fix giving the House Committee on the Revision of Laws (now charged with upkeep of the codification) time to rectify errors and begin piecemeal enactment of the United States Code as positive law. This temporary fix slowly calcified. In 1946 the committee was demoted to subcommittee. In 1974 it became a government agency of sorts. A 1974 law elevated the Law Revision Counsel from an officer of the House Judiciary Committee to the head of a separate office reporting to, and appointed by, the Speaker of the House. Three men have held the post since 1974: Edward Willet, Jr. (1975 – 1996), John R. Miller (1997 – 2004), and Peter LeFevre (2004 – present).

When Congress enacts a new law, lawmakers don’t normally consider where the law will fit in the Code. In its role as the Code’s custodian, the OLRC decides where laws go. Organizing and maintaining the Code is an enormous job that occupies most of the OLRC staff. Charles Zinn, Law Revision Counsel in the 1950’s, described the process as “a matter of opinion and judgment” driven by “where we think the average user will look.” LeFevre agrees that although the OLRC follows policies and precedent, the driving force behind placing a law in the Code is where people “will expect to find it.”

I asked LeFevre why the securities laws have such difficult citations. He didn’t know, but he told me that laws are added to titles in chronological order, unless they are related to laws that have already been enacted. The securities laws are squeezed into Title 15 of the US Code between Chapter 2 and Chapter 3. Chapter 1 contains antitrust laws: the Sherman Act of 1890, followed by the Clayton Act of 1914. Chapter 2 contains the Federal Trade Commission Act of 1914 and Chapter 3 contains the Trade-Mark Act of 1905.

Why are the securities laws of 1933 – 1940 jammed in between the FTC Act and the Trade-Mark Act? The answer lies in the Securities Act of 1933. When Congress enacted the ’33 Act, the first of a series of planned securities laws, it charged the Federal Trade Commission with enforcing the Act. A year later Congress enacted the Securities Exchange Act of 1934, which created the Securities and Exchange Commission. The ’34 Act removed the securities laws, including the ’33 Act, from the jurisdiction of the FTC and placed them within the oversight of the SEC. Unfortunately, the ’33 Act had already been placed in the Code, right next to the FTC Act. Instead of moving the ’33 Act, the Law Revision Counsel decided to let things stand and proceeded to cram all of the securities laws in the space between the FTC Act and the Trade-Mark Act. To add insult to injury, in 1946 Congress enacted the Lanham Act and repealed Chapter 3.

To learn more about the Office of Law Revision Counsel, visit its website. The legislation governing the OLRC may be found at 2 U.S.C. 285 – 285g. Those interested in the positive codification process should read Charles Zinn’s address to the Law Librarians’ Society of Washington, D.C. at, 45 Law Libr. J. 2 (1952) and Richard J. McKinney’s excellent “United States Code: Historical Outline and Explanatory Notes."