Wells Fargo investment chief wants government action

Chris Jones

Thursday, Feb. 14, 2002 | 11:15 a.m.

Wells Fargo & Co.'s chief investment officer on Tuesday called for increased federal action to prevent further decline of investor confidence in the nation' stock markets following the scandal-ridden collapse of Enron Corp.

Timothy Leach, executive vice president and chief investment officer for the big San Francisco-based financial organization, said he believes the nation's economy is in a formative recovery that should produce growth by midyear. Despite its progress, Leach said overall economic improvement has been hurt by concerns about the financial fidelity of large publicly traded corporations.

"When that kind of a shock comes through, it does really affect investor confidence," Leach said. "Investigators, analysts and investors are looking for evidence of wrongdoing by management teams or (in the) accounting practices of all sorts of companies. ... That kind of a panic phase is frankly very damaging to the marketplace."

Leach was in Las Vegas to speak to a group of nearly 300 private banking clients. Prior to addressing the group, he said Enron's collapse and the associated allegations of fraud concerning its erstwhile accounting firm Arthur Andersen "sent shockwaves throughout Wall Street" and will have a larger long-term effect on consumer and investor confidence than the Sept. 11 terrorist attacks.

"It's one thing to have an attack like in September that blindsides you," Leach said. "It's another when something you feel like you should have been able to believe in -- the regulatory system and our whole accounting system -- is shaken."

To restore confidence in the financial system, Leach said the federal government should increase the ability of the Securities and Exchange Commission to monitor the complex affairs of large corporations, accounting firms and other key players in the national economy.

"The SEC, in my view, for the last 10 years has been allowed to become increasingly underpowered to deal with the sophistication and complexity of corporate America," Leach said.

Leach said both government and business leaders should push for pay increases for SEC employees to reduce the so-called "brain drain" that results in government employees leaving regulatory agencies to accept higher-paying jobs in the private sector. He also said regulators need access to better technologies and resources.

"It's a people and tools issue," Leach said.

Leach said the government should also impose stricter accounting requirements for unaffiliated partnerships and special purpose entities such as the dummy corporations Enron executives allegedly used to hide debts of more than $1 billion from the company's financial records.

Despite his calls for change, however, Leach believes the fraudulent practices of Enron are not widespread.

"My belief is there are not likely going to be a lot of incidents of companies with those issues," he said.