WAMCO’s Ken Leech Charged With Fraud For Allegedly ';Cherry-Picking' Trades
The Securities and Exchange Commission (SEC) on Monday announced fraud charges against Stephen Kenneth ("Ken") Leech, the former co-chief investment officer of Western Asset Management Company LLC or WAMCO, owned by Franklin Resources, Inc. (NYSE:BEN).
The SEC's complaint alleges that Leech engaged in a multi-year scheme to allocate favorable trades to certain portfolios, while allocating unfavorable trades to other portfolios in a practice known as "cherry-picking" from at least January 2021 through October 2023.
The SEC claims Leech placed trades with brokers and then 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 allowed him the opportunity to observe price movements, and then disproportionately allocate profitable trades to favored portfolios and unprofitable trades to disfavored portfolios.
"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 complaint alleges that Leech allocated hundreds of millions of dollars in gains to favored portfolios, which also benefited Leech personally, and allocated a similar amount of losses to disfavored portfolios.
Leech received annual bonuses ranging from $28 million to $30 million per year between 2018 and 2020, and $21 million in 2022, the SEC said, per Bloomberg.
In a parallel action, the U.S. Attorney's Office for the Southern District of New York also announced charges against Leech. The SEC said its investigation remains ongoing.
SEC Enforcement Results for Fiscal Year 2024
Last Friday, the SEC released its enforcement results for fiscal 2024 and said that it filed 583 total enforcement actions during the year. The agency also obtained orders for $8.2 billion in financial remedies, the highest amount in SEC history.
The $8.2 billion in financial remedies consisted of $6.1 billion in disgorgement and prejudgment interest, also the highest amount on record, and $2.1 billion in civil penalties, the second-highest amount on record.
More than half – 56% – of the $8.2 billion financial remedies ordered is attributable to a monetary judgment obtained following the SEC's trial win against Terraform Labs and Do Kwon.
"The Division of Enforcement is a steadfast cop on the beat, following the facts and the law wherever they lead to hold wrongdoers accountable," said SEC Chair Gary Gensler. "As demonstrated by this year's results, the Division helps promote the integrity of our capital markets to benefit investors and issuers alike."
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