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Boesky-buster, leaving SEC, wants higher ethics

By Barbara BradleyStaff writer of The Christian Science Monitor / April 15, 1987



Washington

WHEN John Shad was a boy, his grandmother gave him a piece of advice. Divide your life, she told the future chairman of the Securities and Exchange Commission (SEC), into three parts: a third of the time to learn, a third to earn, and a third to serve.

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To date, Mr. Shad has stuck by his grandmother's agenda - much to the chagrin of Ivan Boesky, Dennis Levine, and several other big names on Wall Street. For Shad's idea of service has led to their downfall and to the biggest crackdown that Wall Street has seen.

``John Shad is responsible for some of the greatest accomplishments in law enforcement in the history of the commission,'' says Theodore Levine, who worked at the SEC for 14 years and is now one of the lawyers representing Mr. Boesky. Last November the SEC charged Boesky with making millions of dollars in illegal profits by trading stocks on ``inside'' (nonpublic) information. Boesky agreed to pay $100 million in penalties and now faces a criminal charge.

Shad's crusade seems as much personal as professional. He is disturbed by what he calls ``a change in moral attitudes'' in the United States since the end of World War II, and his post at the SEC has given him a chance to try to reverse that ethical decline.

``I think a lot of young people feel that ethics is something you get the reward for in the hereafter rather than in the here and now,'' Shad told the Monitor recently. ``I believe you get the benefits here and now as well as in the hereafter.''

Soon Shad will leave the SEC to become US ambassador to the Netherlands. But as he wraps up his 5 years, critics and admirers say his leadership has rewritten the code of conduct on Wall Street.

``The Street is examining everything they're doing more closely than they have in the past,'' says Robert Fomon, chairman of E.F. Hutton & Co., where Shad worked for 18 years. Hutton has not been involved in any of the SEC's insider-trading indictments, though it pleaded guilty to a multimillion-dollar check-kiting scheme in 1985. ``The attitude at Hutton is that long range it's going to be very good for the industry,'' Mr. Fomon says.

Law enforcement is not the only way Shad has attacked corruption. He is giving an estimated $20 million to Harvard Business School to start a program on business ethics and leadership.

``I think John Shad is genuinely disturbed by the black eye [the SEC prosecutions] have given the industry,'' says Gregg Jarrell, who was Shad's chief economist until January. ``The Harvard gift indicates the tremendous torment he's felt.''

The son of a schoolteacher and a sportswriter, Shad was not born wealthy. He worked his way through college as a riveter at Lockheed Corporation. He joined the Navy and caught the tail end of World War II. Upon his return, he finished college and went through Harvard Business School under the GI Bill. A few years later, he got a law degree at New York University at night while working during the day.

Shad made his fortune in the place that many today are making their criminal records - Wall Street. Though his rise to vice-chairman of E.F. Hutton was ``not meteoric,'' according to Fomon, it was enough for Shad to squirrel away some money. When Shad left Hutton - and the earning stage of his life - for the SEC, he was reputedly the wealthiest man to join the Reagan administration.

Initially, he was regarded with suspicion by his staff. He had been one of Ronald Reagan's leading fund-raisers in New York in the 1980 campaign, and some aides believed he would have the same hands-off approach to business that other Reagan appointees had shown. In addition, there was ``some speculation'' that he would go easy on his old Wall Street colleagues, says Mr. Levine, who worked at the SEC under Shad until 1984.