(Bloomberg) - Western Asset Management Co. is examining a subset of about 17,000 trades conducted by Ken Leech as the firm seeks to unravel how the veteran fixed-income investor’s allocations among various accounts triggered US enforcement investigations.
Trades made between spring 2021 and autumn 2023 are the subject of an internal investigation begun in October after a company insider flagged abnormalities in the allocations, according to Max Curtin, an analyst at Morningstar Inc. who has talked with the firm since it put Leech on immediate leave this week.
The US Securities and Exchange Commission has sent Leech a Wells notice, a warning that the agency may recommend enforcement action, according to a statement from Wamco on Wednesday. Wamco, which is owned by Franklin Resources Inc., is cooperating with SEC and Department of Justice probes.
A Wells notice doesn’t necessarily mean the recipient will be charged with anything. A representative for Leech did not immediately respond to messages seeking comment.
“Western takes these matters very seriously, and we immediately engaged an external firm to conduct an internal investigation, which is ongoing,” Jeaneen Terrio, a spokesperson for Western, said in a statement.
“Pursuant to an agreement at the time of acquisition, Western is an autonomous investment management company, including all functions, technology, operations, legal and compliance,” Terrio said in the statement. “While we are confident in our policies and procedures, Western and Franklin Resources are in the process of reviewing them and will implement changes as needed.”
Western’s internal probe involves 38 accounts across three strategies, according to a person familiar with Wamco. The trades in question involved Treasury derivatives and unrealized first-day gains and losses, the person said.
The SEC investigation began in early November 2023, and Wamco hadn’t reported its own probe to the agency because of its preliminary nature, the person said. The company’s investigation so far hasn’t found evidence that Leech had personal or professional motivations to favor one strategy over another, the person added.
Shares of Franklin Resources closed at $20.68 in New York. They are down about 31% for the year.
By Silla Brush and Sabrina Willmer
