NEW YORK, June 5 (Reuters) – Western Asset Management Co, a unit of Franklin Resources, will pay a $100 million civil penalty to resolve U.S. Securities and Exchange Commission charges related to former co-chief investment officer Kenneth Leech’s alleged $600 million cherry-picking scheme, the regulator said on Friday.
The settlement is one of the largest announced by the SEC during U.S. President Donald Trump’s second term.
Leech’s criminal trial is scheduled to begin in Manhattan on June 15. Prosecutors allege that his scheme ran from January 2021 to October 2023.
Leech, 71, has pleaded ‘not guilty’. Wamco, as his former employer is known, did not admit wrongdoing.
Once Wamco’s star portfolio manager, Leech was charged in November 2024 with four counts of fraud for improperly favoring some clients’ accounts when allocating trades, a practice known as cherry-picking, and one count of making false statements.
SEC SAYS LEECH TRADES WERE NOT ‘FAIR AND EQUITABLE’
Authorities said Leech steered U.S. Treasury derivative trades that performed well on their first day to favored portfolios following a “Macro Opportunities” strategy, which he said reflected his best ideas, and allocated worse-performing trades to portfolios following “Core” and “Core Plus” strategies.
Prosecutors said Leech became particularly attuned to supporting Macro Opportunities portfolios after they lost money on Russian debt following Russia’s invasion of Ukraine in 2022, and on Credit Suisse debt when the Swiss bank collapsed in 2023.
The SEC said Pasadena, California-based Wamco knew Leech’s trading and allocation practices diverged from his colleagues’, yet failed to properly supervise him or ensure his allocations were “fair and equitable” to clients.
In a regulatory filing, Franklin said Wamco agreed to settle as a “business decision” to avoid prolonged litigation, and the accord ended probes by the SEC and the Department of Justice.
A spokesman for Leech and his lawyers declined to comment.
Wamco’s assets under management stood at $228.9 billion as of March 31 compared to $381.1 billion in June 2024, the month before probes into Leech’s trading were first disclosed.
A mutual fund that Leech helped to manage, Western Asset Core Plus Bond, lagged more than 95% of its peers in 2022 and 2024 after having largely outperformed since 2014, Morningstar data show.
Franklin, based in San Mateo, California, ended March with $1.68 trillion of assets under management.
(Reporting by Jonathan Stempel in New York; Editing by Chizu Nomiyama)
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