Former star US bond manager Leech fined by SEC, following guilty plea in 'cherry-picking' case

• The alleged scheme involved more than $600 million and ran from January 2021 to October 2023, with Leech accused of retroactively allocating trades based on first-day performance to boost revenue and his compensation
• Leech pleaded guilty in June to one obstruction charge (after lying during sworn SEC testimony) and faces 6-12 months in prison under sentencing guidelines, while four fraud charges were dropped
• Western Asset Management (Wamco), part of Franklin Resources, paid $100 million separately for supervisory failures; neither Leech nor Wamco admitted wrongdoing in the civil settlement

Summary: Former Bond Manager Kenneth Leech Fined in SEC Cherry-Picking Case

Kenneth Leech, a former prominent bond manager, will pay a $3 million fine to settle SEC civil charges related to a "cherry-picking" scheme, the regulator announced Tuesday. This follows his guilty plea in June to one obstruction charge.

Key Financial Details:

• Leech's fine: $3 million
• His former employer, Western Asset Management Co. (Wamco), previously agreed to pay $100 million in June to resolve SEC charges of inadequate supervision
• Total restitution to harmed investors: $103 million (pending court approval)
• Alleged scheme value: Over $600 million
• Duration: January 2021 to October 2023

The Scheme:

Leech allegedly engaged in cherry-picking—assigning profitable trades to favored investors while directing losing trades to others. Authorities claim he waited to see first-day trade performance before retroactively allocating them to clients, benefiting Wamco's revenue and his compensation. Profitable trades were allegedly steered to "Macro Opportunities" portfolios, while underperforming trades went to "Core" and "Core Plus" portfolios.

Legal Proceedings:

Leech faces six to 12 months in prison under federal sentencing guidelines. Prosecutors dropped four fraud charges following his guilty plea to obstruction, stemming from allegedly lying during sworn SEC testimony about having allocations planned when placing trades.

Neither Leech nor Wamco admitted wrongdoing in the settlement. Wamco is part of Franklin Resources, parent company of Franklin Templeton.

Market Implications:

This case highlights ongoing regulatory scrutiny of asset management practices and fiduciary duties, particularly regarding trade allocation fairness among client portfolios.