Securities and Exchange Commission Historical Society

Regulating the Regulators: The Executive Branch and the SEC, 1981-2008

Ronald Reagan Administration

Shad Commission

November 6, 1981 SEC  Commission
November 6, 1981 SEC Commission:  Barbara Thomas, Philip Loomis, John Shad, John Evans and Bevis Longstreth

John Shad, a former E.F. Hutton Vice Chairman, was selected by President Reagan as SEC Chairman.  John Fedders, whom Chairman Shad appointed as Director of Enforcement, remembered that Shad “had some definite ideas about the administration of the SEC and the administration of justice.  He was very loyal to President Reagan.  I think he liked politics and it was something that he had never been involved in before.”21

Some SEC staff were skeptical about Shad’s commitment to their work.  Joel Goldberg recalled that Shad was “a very, very smart man, but he had really drunk the Kool-Aid of the Reagan philosophy that we’ve got to shrink the government, the fewer rules the better.”  Shad saw the SEC’s role, not as the traditional “cop on the corner of Wall Street and Broad,” but as a promoter of capital formation, in line with the agenda developed by the President’s Task Force on Regulatory Relief.  He signaled a friendlier regulatory approach by the SEC, disagreeing with the proposition that government had to have an “adversarial relationship with business.”22

He won support from staff with his proposal of shelf registration, “where the issuer can file a registration statement, and on a moment’s notice declare it effective and sell it on the market that day.  So his willingness to override institutional memory caused the SEC to be much more responsive to the market.”23

During Shad’s tenure, the SEC concluded the Futures Trading Act with the Commodity Futures Trading Commission.  “We were having a real fight with the CFTC, over who was going to regulate financial futures.  That was very interesting, because we all thought it should be within our jurisdiction, and they thought it was their jurisdiction.  And frankly, I knew they would win, because I knew Philip Johnson was smarter than Shad; he was tougher and smarter.  I remember saying over and over again, ‘We should be winning this.  There’s no question that we have the primary jurisdiction.’ But I don’t believe that when you get Philip Johnson and John Shad in a room that Philip Johnson will walk out the loser.”24

Despite Shad’s philosophy that hostile takeovers were a good discipline on the market, he convened the Advisory Committee on Tender Offers. While avoiding the question of whether hostile takeovers were inherently good or bad, the Advisory Committee sought both to reduce barriers to takeovers and to end abusive practices associated with them.25

A personal project for Shad was the development of EDGAR, the Electronic Data Gathering Analysis and Retrieval System, which began as a model test program in 1984.  “If his wasn’t the first government agency to try to computerize things, it was the second.  Especially given the nature of the industry you’re regulating, everything is moving so much faster than it was thirty years ago, not to have gotten out in front of the electronic age would have been just a terrible disservice.  So [Shad] deserves credit for that."26

A challenge to the SEC during Shad’s Chairmanship was the revelation of widespread insider trading abuses.   The appointment of Justice Lewis Powell, a former securities lawyer, led to the U.S. Supreme Court’s more active role in insider trading cases, with its decisions in Chiarella v. U.S. and Dirks v. SEC.27 The SEC Enforcement staff brought to Shad evidence of “the Dennis Levine case, and that led to [Ivan] Boesky and to Marty Siegel – and then Boesky led to Drexel Burnham and to Michael Milken – it took a while for the Chairman to process what this meant, because we now had taken a can opener to the investment banking community that he’d come from.  It was very difficult for him to come to terms with this and accept it.  There was more than one long conversation that Gary [Lynch] had with the Chairman, explaining ‘John, this really happened.  We didn’t make this evidence up.’”28

Chairman Shad had “a gut feeling that insider trading was rampant,” but it still stung to uncover fraud in the investment community in which he had worked.  “When the first cases came up, he really wanted to whip them hard.  Playing amateur psychiatrist, I think he felt betrayed by the Boeskys and the Levines of the world that he knew well.  I think he felt particularly betrayed by Mr. Milken.”  Shad became “more interested in stringent enforcement.  He said he was going to come down on insider trading like hobnail boots.” One insider trading case went straight to the White House.  The Enforcement staff found culpability with Paul Thayer, a former Chairman and CEO of LTC, who served as Deputy Secretary of Defense.  Shad, who had closely vetted the Thayer case, recommended to staff that they advise the White House, providing briefings to both Fred Fielding, Counsel to the President, and Caspar Weinberger, Secretary of Defense. 29

Shad chose to end his SEC Chairmanship in 1987, and in recognition of his service, the Reagan Administration appointed him Ambassador to The Netherlands.  As Karl Barnickol noted, his tenure led to major SEC initiatives, not least that “the SEC stops trying to review everything that’s filed.  I think Shad’s regime was terribly important, and it has had a huge lasting impact.  He’s been dead for years now, but his statue should be at the SEC.”30


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Related Museum Resources

Galleries

The Center for Audit Quality Gallery on Corporate Governance
Wrestling with Reform: Financial Scandals and the Legislation They Inspired
Chasing the Devil Around the Stump: Securities Regulation, the SEC and the Courts
Fair To All People: The SEC and the Regulation of Insider Trading
The Municipal Securities Rulemaking Board Gallery on Municipal Securities Regulation

Papers

March 24, 1981
transcript pdf (Courtesy of the Ronald Reagan Library)
April 13, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
April 28, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
April 30, 1981
image pdf (Courtesy of George Bush Presidential Library and Museum)
May 27, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 3, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 16, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 29,1981
image pdf (Courtesy of George Bush Presidential Library and Museum)
June 29, 1981
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 29,1981
image pdf (Courtesy of George Bush Presidential Library and Museum)
July 9, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
July 13, 1981
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
August 21, 1981
image pdf (Courtesy of George Bush Presidential Library and Museum)
October 4, 1981
transcript pdf (Courtesy of the Ronald Reagan Library)
October 11, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 12, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 16, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 20, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 28, 1981
image pdf (Courtesy of George Bush Presidential Library and Museum)
November 10, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
November 13, 1981
transcript pdf (Courtesy of the Ronald Reagan Library)
November 16, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
November 19, 1981
image pdf (Courtesy of George Bush Presidential Library and Museum)
December 2, 1981
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
December 21, 1981
transcript pdf (Courtesy of George Bush Presidential Library and Museum)
December 29, 1981
transcript pdf (Courtesy of the Ronald Reagan Library)
March 25, 1982
document pdf (Courtesy of David B.H. Martin, Jr.)
April 6, 1982
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
April 12, 1982
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 3, 1982
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
June 21, 1982
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
December 3, 1982
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
January 24, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 25, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
March 25, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
April 5, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
April 13, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
May 2, 1983
image pdf (Courtesy of George Bush Presidential Library and Museum)
May 4, 1983
image pdf (Courtesy of George Bush Presidential Library and Museum)
May 18, 1983
image pdf (Courtesy of George Bush Presidential Library and Museum)
May 18, 1983
image pdf (Courtesy of George Bush Presidential Library and Museum)
June 29, 1983
image pdf (Courtesy of George Bush Presidential Library and Museum)
July 1, 1983
image pdf (Courtesy of David B.H. Martin)
July 5, 1983
image pdf (Courtesy of George Bush Presidential Library and Museum)
July 12, 1983
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
July 27, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
August 5, 1983
image pdf (Courtesy of David B.H. Martin)
September 15, 1983
image pdf (Courtesy of John Huber)
September 16, 1983
image pdf (Courtesy of John Huber)
September 23, 1983
image pdf (Courtesy of John Huber)
October 9, 1983
image pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 14, 1983
transcript pdf (Courtesy of the estate of John R. Evans; made possible through a gift from Quinton F. Seamons)
October 26, 1983
image pdf (Courtesy of David B.H. Martin)
November 1983
image pdf (Courtesy of John Huber)
November 14, 1983
image pdf (Courtesy of David B.H. Martin)
January 25, 1984
image pdf (Courtesy of David B.H. Martin)
January 31, 1984
transcript pdf (Courtesy of David S. Ruder)
February 2, 1984
image pdf (Courtesy of John Huber)
March 1, 1984
image pdf (Courtesy of John Huber)
March 1, 1984
image pdf (Courtesy of John Huber)
March 14, 1984
image pdf (Courtesy of John Huber)
May 1984
document pdf (Courtesy of Theodore Levine)
May 23, 1984
image pdf (Courtesy of George Bush Presidential Library and Museum)
July 27, 1984
image pdf (Courtesy of Stuart J. Kaswell)
August 8, 1984
image pdf (Courtesy of David B.H. Martin)
September 10, 1984
document pdf (Courtesy of David B.H. Martin, Jr.)
September 19, 1984
image pdf (Courtesy of John Huber)
March 4, 1985
document pdf (Courtesy of David B.H. Martin, Jr.)
March 6, 1985
image pdf (Courtesy of David B.H. Martin)
March 14, 1985
image pdf (Courtesy of David B.H. Martin)
July 9, 1985
image pdf (Courtesy of the Ronald Reagan Library)
July 19, 1985
image pdf (Courtesy of David B.H. Martin)
January 9, 1986
image pdf (Courtesy of John Huber)
May-June 1986
image pdf (Courtesy of John Huber)
June 19, 1986
image pdf (Courtesy of David S. Ruder)
June 23, 1986
image pdf (Courtesy of Stuart Kaswell)
July 23, 1986
image pdf (Courtesy of David S. Ruder)
January 1987
image pdf (Courtesy of David S. Ruder)
March 26, 1987
image pdf (Courtesy of National Archives and Records Administration)
August 29, 1988
image pdf (Courtesy of David S. Ruder)
May 5, 1989
image pdf (Courtesy of David S. Ruder)

Oral Histories

03 June 2013

Karl Barnickol

14 May 2013

Charles Cox

09 August 2006

John Fedders

07 April 2015

Edward Fleischman

18 February 2009

Stephen Friedman

17 October 2013

Angela Goelzer

14 April 2008

Daniel Goelzer

20 April 2016

Joel Goldberg

12 July 2006

Paul Gonson - Part I

15 February 2008

Edward Greene

20 June 2013

Joseph Grundfest

02 June 2009

John Huber

13 November 2005

Barbara Thomas Judge

17 April 2008

Richard Ketchum - Part I

03 May 2016

Martin Lybecker

19 July 2006

Gary Lynch

01 July 2013

David B.H. Martin

05 March 2012

William McLucas

25 February 2008

Phillip Parker

07 November 2005

Aulana Peters

25 February 2009

Willis Riccio

12 June 2007

Alan Rosenblat

07 July 2005

A. Clarence Sampson

17 September 2013

Cecile Srodes

19 January 2006

Harold Williams

Programs

22 May 2007

Fireside Chat - Insider Trading

Moderator: Theresa Gabaldon

Presenter(s): Donna Nagy, Mark Radke

04 April 2006

Fireside Chat - EDGAR

Moderator: Theresa Gabaldon

Presenter(s): David Copenhafer, Amy Goodman, Jonathan Katz

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