A key congressman has attacked Securities and Exchange Commission Chairman John S. R. Shad for appearing to favor budget cuts over protecting the public from investment fraud.

Rep. Timothy E. Wirth (D-Colo.), who heads the House subcommittee that oversees the SEC, also promised hearings next month on insider trading. That issue was brought to the fore recently by reports of a federal grand jury investigation of whether White House national security aide Thomas C. Reed violated criminal law by parlaying a $3,000 stock option investment into a $427,000 windfall two days later.

Wirth's subcommittee on telecommunications, consumer protection and finance has collected SEC documents on all the agency's insider-trading investigations. Wirth and Rep. John D. Dingall (D-Mich.) are sponsoring a bill to increase penalties for insider trading by assessing up to triple damages on illegal profits as well as forcing violator to return the money.

The Colorado Democrat told Shad that he is disturbed by "the public perception created by this commission" that it is relaxing its enforcement of security law violations at a time when the sharp downturn in the economy increases "the propensity for fraud."

"This simply is not the time for statements that may be interpreted, rightly or wrongly, as a diminution in the resolve of the commission," Wirth wrote in a letter sent Friday to Shad.

"The commission's ability to deter violations through creating widespread belief that violators will be apprehended and firmly prosecuted has been the key to its past success," Wirth continued.

He cited speeches by SEC officials, particularly by Enforcement Director John M. Fedders, that indicate "a change in the toughness and resolve of the commission" in dealing with corporate fraud.

Wirth said he is "most disturbed" by Shad's "apparent lack of commitment" to fight for an adequate budget so the SEC can do its job, and suggested the chairman instead has bowed to the wishes of the Office of Management and Budget.

"Your mission is investor protection," Wirth told Shad, "and the commission must make its own calculation as to what is needed to accomplish that rather that capitulate to the Office of Management and Budget, which has different goals."

Wirth said the SEC's enforcement staff now stands 11 percent lower than in 1979 and the Reagan administration's proposed budget would cut it by another 5 percent. This, Wirth suggested to Shad, indicates "that potentially serious violations go undetected and unremedied by the SEC."

Instead of cutting back, Wirth suggested that the growth of new financial markets--especially through laws allowing banks to sell stocks and bonds--means the SEC should expand its enforcement of security laws.

"With retail, banking, insurance and other institutions affiliating with broker-dealers and marketing new and complex instruments to the investing public," Wirth said, "we must assess the commission's ability to regulate larger entities of which the securities activities are only a part."

A commission spokesman said yesterday it was unlikely Shad had received Wirth's letter, but that the SEC was reviewing the budget request carefully to see if added funds are needed. At an earlier hearing, however, Shad assured the House subcommittee that the SEC could do a good job enforcing security laws with the budget recommended by the White House, but he acknowledged it could do a better job with more money.