(Bloomberg) - Former Western Asset Management Co. co-Chief Investment Officer Ken Leech was charged by US authorities with engaging in an alleged “cherry-picking” scheme to unfairly allocate better-performing trades to favored portfolios and worse-performing trades to others.
Leech, 70, was charged by federal prosecutors in Manhattan, who alleged that he allocated trades hours after executing them, often waiting until the end of the trading day or afterward, which went against the firm’s policies. The Securities and Exchange Commission filed a parallel civil lawsuit making similar allegations.
US authorities have been examining whether Leech parceled out winning trades to favored clients at the expense of others — a practice known as cherry-picking. Investors have pulled billions of dollars from Wamco funds since the firm disclosed criminal and civil investigations earlier this year. Leech took a leave of absence as co-chief investment officer in August after the SEC warned he could face a potential enforcement action.
“The scale and duration of Leech’s allegedly fraudulent conduct amounts to a shocking betrayal of his fiduciary obligations to his clients, who paid dearly for his transgressions,” said Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement. “Investment advisers are at all times obliged to perform their functions, including trade allocations, in a manner that puts their clients’ interests first. As alleged, Leech abdicated that all-important duty for years.”
Jonathan S. Sack, a lawyer for Leech, called the allegations “unfounded.”
“Ken Leech has an unblemished record over nearly 50 years as a trader and portfolio manager,” Sack said in a statement. “Mr. Leech received no benefit from the alleged misconduct. We are confident that he acted properly at all times, and Mr. Leech will defend himself vigorously.”
A spokesperson for Franklin Resources Inc., which owns Wamco, had no immediate comment.
Leech was charged with investment adviser fraud and securities fraud, each of which carries a maximum sentence of 20 years in prison; commodity trading adviser fraud and commodities fraud, both of which carry a top punishment of 10 years; and making false statements, which has a maximum penalty of five years.
By Chris Dolmetsch, Ava Benny-Morrison and Silla Brush
