Sheriffs File Criminal Charges in $600m Bond Fraud Case in Western US
US regulators have taken serious action against Ken Leech, the former co-chief investment officer of Western Asset Management (WAMCO). The Securities and Exchange Commission and the United States Attorney for the Southern District of New York have both filed criminal fraud charges against him for engaging in deceitful trading practices at the prestigious fixed income firm over a two-year span.
A recently released criminal indictment in a New York court outlines the extent of the alleged fraud, stating that Leech’s actions harmed both institutional and retail investors who trusted him to manage their money. The indictment reveals that Leech manipulated trades, directing profitable transactions to his favored strategy and clients while burdening other clients with losses, despite owing them the same fiduciary duty.
Leech used a tactic called ‘cherry-picking’ to selectively allocate trades, ensuring that the Macro Opportunities strategy profited while the Core funds he oversaw suffered losses. This pattern persisted consistently, with trades allocated to Macro Opportunities yielding gains month after month, while those assigned to the Core Strategies experienced losses in almost every month.
Following WAMCO’s intervention in October 2023, where they removed Leech from control of the Core strategies, the Macro Opportunities fund no longer exhibited a biased preference for immediate gains. Despite stepping down from his position at WAMCO in August, Leech faces multiple criminal charges under various financial regulations, including investment adviser laws, securities legislation, and commodities laws, with potential lengthy jail sentences.
Simultaneously, the SEC has initiated a civil case against Leech, seeking injunctions, disgorgement, and other penalties. Investor confidence in WAMCO has plummeted since news of the scandal emerged, causing significant withdrawals totaling over $50 billion. Franklin Templeton, the parent company of WAMCO, is reportedly integrating the bond manager into its larger operations to mitigate the fallout.
The repercussions of Leech’s actions have rippled through the financial world, impacting clients and raising concerns about the integrity of investment management practices. Stay informed about the latest developments in this unfolding saga as more details emerge.
