Ken Leech, the former co-chief investment officer of Western Asset Management Company, agreed to pay a $3 million penalty to settle Securities and Exchange Commission (SEC) fraud charges. The regulator asked a federal court in Manhattan yesterday (Tuesday) to approve the deal.
The consent judgment would also bar Leech from serving as an officer or director of a public company.
Together with the $100 million civil penalty Western Asset agreed to pay in June, the two settlements would return $103 million to clients whose portfolios absorbed the losing trades, the SEC said.
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Western Asset is the Pasadena, California-based fixed-income unit of Franklin Resources, whose Franklin Templeton brand extended its tokenized money market fund to Bybit as trading collateral in September.
The deal comes as the SEC under Chairman Paul Atkins says it has recentered enforcement on fraud after dropping cases it said caused no direct investor harm.
How the Allocation Scheme Worked
According to the SEC's November 2024 complaint, Leech placed futures trades from at least January 2021 through October 2023 and then routinely held off allocating them. The allocations came near or after the time futures markets set their daily settlement prices.
That gave him a view of how the positions had moved before he chose which accounts received them, the regulator said. Hundreds of millions of dollars in realized and unrealized first-day gains went to favored portfolios, and a similar amount of first-day losses went to disfavored ones.
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Brent Wilner, associate director of the SEC's Los Angeles Regional Office, called the conduct by Leech and Western Asset "an egregious breach of fiduciary obligations to their clients."
Authorities alleged in 2024 that the winners went mainly to Western Asset's Macro Opportunities strategy, while the losses landed in Core and Core Plus portfolios. Reuters has put the scheme at more than $600 million.
The Commodity Futures Trading Commission (CFTC) has pursued the same pattern at a much smaller size. In September 2025 it settled with Systematic Alpha Management, which it said steered winning trades to company accounts and losing ones to client pools.
Guilty Plea and Sentencing Ahead
The SEC filed its civil complaint against Leech in the same court in November 2024. He consented to the judgment without admitting the allegations. It would permanently enjoin him from violating the antifraud provisions of federal securities laws.
He also agreed to a separate associational bar, which the SEC said is forthcoming. Such bars typically keep an individual from working with regulated firms, including investment advisers and broker-dealers.
The civil settlement follows his criminal case. In June, Leech pleaded guilty in the US District Court for the Southern District of New York to obstruction of justice over false and misleading testimony he gave during the SEC investigation.
The plea came days before his fraud trial was due to begin, and four fraud charges were dropped under the deal, Reuters reported. Prosecutors have said federal guidelines point to six to 12 months in prison. The SEC said sentencing will take place in the coming weeks.
The SEC has followed criminal pleas with civil judgments before. In 2020 it obtained a final judgment against Sean Stewart, a former investment banker who had pleaded guilty in an insider trading case.
Firm Settled Supervision Charges in June
Western Asset resolved its own case on June 5 through a settled SEC administrative order. The regulator found the firm failed to take reasonable steps to detect and prevent Leech's conduct and did not follow the reallocation procedures it had set for itself.
Western Asset was also censured and ordered to cease and desist. Its $100 million penalty goes into a Fair Fund for investors in the disfavored portfolios.
Fair Funds are how the agency passes penalties on to victims, and it distributed $1 billion to harmed investors in fiscal 2023.
Wilner said the outcome would reinforce that "advisers must put clients first, every time."
The SEC has pursued cherry-picking on a far smaller scale before. In 2017 it charged Massachusetts adviser Michael Breton with keeping winning trades for himself and leaving losing ones in client accounts, a scheme it valued at $1.3 million across at least 30 clients.
The agency thanked the US Attorney's Office for the Southern District of New York and the FBI for their assistance. Leech and his lawyers did not respond to a request for comment from Reuters.
