The Securities and Exchange Commission today announced fraud charges against Stephen Kenneth (“Ken”) Leech, the former co-chief investment officer (CIO) of registered investment adviser Western Asset Management Company LLC or WAMCO, for engaging in a multi-year scheme to allocate favorable trades to certain portfolios, while allocating unfavorable trades to other portfolios, a practice known as cherry-picking.
The SEC’s complaint alleges that from at least January 2021 through October 2023, Leech placed trades with brokers and then routinely waited until later in the trading day to allocate the trades among clients in the portfolios he managed. According to the complaint, Leech’s delay between placing and allocating trades gave him the opportunity to observe price movements, and then disproportionally allocate trades at a first-day gain to favored portfolios and trades at a first-day loss to disfavored portfolios. As alleged, Leech allocated hundreds of millions of dollars of net first-day gains to favored portfolios, which also benefited Leech personally, and a similar amount of net first-day losses to disfavored portfolios.
“The scale and duration of Leech’s allegedly fraudulent conduct amounts to a shocking betrayal of his fiduciary obligations to his clients, who paid dearly for his transgressions,” said Sanjay Wadhwa, Acting Director of the SEC’s Division of Enforcement. “Investment advisers are at all times obliged to perform their functions, including trade allocations, in a manner that puts their clients’ interests first. As alleged, Leech abdicated that all-important duty for years.”
“This alleged behavior is an egregious abuse of power,” said Andrew Dean, Co-Chief of the Division of Enforcement’s Asset Management Unit. “By hand-picking trades and sending them to portfolios he favored, Leech allegedly stood to profit personally and professionally.”
The SEC’s complaint, filed in the United States District Court for the Southern District of New York, charges Leech with violating antifraud and other provisions of the federal securities laws, and seeks permanent and conduct-based injunctions, an officer-and-director bar, disgorgement, prejudgment interest, civil penalties, and other relief.
In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced charges against Leech.
The SEC’s investigation, which is ongoing, is being conducted by Lindsey Keenan, Ronnie Lasky, Brian Fitzpatrick, and Sarah Nilson and supervised by Mr. Dean and Corey Schuster, all of the Asset Management Unit, and Brent Wilner, Associate Director of the Los Angeles Regional Office. The investigative team appreciates the assistance of Jennifer Ferris, Michael Barnes, Thomas Dunn, and Stephen Graham of the Division of Economic and Risk Analysis. The litigation will be led by Debra Jaroslawicz, Ms. Keenan, and Ms. Lasky, and supervised by Daniel Loss. The SEC acknowledges the assistance and cooperation of the U.S. Attorney’s Office for the Southern District of New York and the FBI.
