Controversies that are testing investors’ faith in the stock market are to be expected following an unprecedented 17-year economic expansion and run-up in U.S. markets.
Corporate wrongdoing, investment malfeasance and exorbitant salaries and benefits don’t surprise James W. Brinkley, vice chairman and CEO of Baltimore-based brokerage Legg Mason Wood Walker Inc.
Brinkley, who was in Knoxville Monday leading an investment seminar for Legg Mason clients and the public at the Knoxville Convention Center, doesn’t excuse the behavior and said the Securities and Exchange Commission and the National Association of Securities Dealers are able to police the industry.
But Brinkley gives New York Attorney General Eliot Spitzer, who is heading investigations into financial industry practices, an edge.
“The SEC and the NASD can get the regulatory job done, but it’s just that Eliot Spitzer can do it faster because he has the power to launch criminal investigations,” Brinkley said.
Allegations about mutual fund trading have drawn the interest of Spitzer and the ire of investors and brokers. Spitzer alleges a New Jersey hedge fund and its manager worked with mutual fund companies to pursue improper trading strategies, including after-hours trades.
If true, those practices create an unfair advantage for some companies, Brinkley contended.
“I’m astonished that some firms permitted trading to take place after 4 p.m. trading closed,” he said. “It’s a negative picture on the industry. Public trust and confidence is the most important thing our industry can work on.”
He expects investors to get beyond the rash of misdeeds and focus on sound investment strategy. He doubts the scandals will have a lasting effect, other than to give rise to more “bad laws” and believes virtues create values.
Brinkley advises Legg Mason’s clients to resist looking “in the rear view mirror” to make choices. While mood and emotions tend to drive investment decisions, he instead is steering them to decisions based on probability.
He expects the stock markets to respond to changes in the economy.
“I think you’re beginning to see some improvement,” he said.
Legg Mason has an office on Northshore Drive.
Assistant business editor Bill Brewer may be reached at 865-342- 6319.
