Western US$600m Bond Fraud Case: Criminal Charges Filed by Sheriffs
US regulators have filed official fraud charges against Ken Leech, 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 are pursuing legal action against Leech for engaging in deceptive trading practices at the global fixed income firm over a two-year period.
The criminal indictment revealed in a New York court accuses Leech of defrauding institutional and retail investors who relied on him to manage their savings and pension plans. The indictment alleges that Leech manipulated trades to benefit certain strategies and clients while intentionally causing losses to other clients, violating his fiduciary duty.
The indictment uncovered a practice known as ‘cherry-picking,’ where Leech assigned profitable trades to favored strategies and clients, while allocating losing trades to other funds he managed. This biased allocation persisted over a 34-month period, resulting in significant gains for one strategy and substantial losses for others.
After losing control of the Core strategies in October 2023, the Macro Opportunities fund no longer displayed a consistent bias toward generating gains. Leech, who stepped down from WAMCO in August, faces multiple criminal fraud charges under investment adviser and securities laws, with potential sentences ranging from five to 20 years in prison.
In addition to the criminal charges, the SEC has initiated a civil case against Leech, seeking various remedies such as injunctions, disgorgement, and civil penalties. Following the scandal, investors have withdrawn over $50 billion from WAMCO, leading to the loss of institutional mandates and prompting Franklin Templeton, WAMCO’s affiliate manager, to integrate the firm into its broader operations. The fallout from the case has underscored the importance of transparency and ethical investment practices in the financial industry.
