SEC Pursues Final Judgment Against Ex-Western Asset Co-CIO in Cherry-Picking Case
The SEC has moved for a consent final judgment against Ken Leech, former co-CIO of Western Asset Management, over alleged cherry-picking of trades.
The Securities and Exchange Commission on Monday moved to secure a final judgment by consent against Stephen Kenneth Leech II, the former co-chief investment officer of Western Asset Management Company LLC, a registered investment adviser, in an enforcement action centered on alleged cherry-picking of investment trades.
Cherry-picking schemes typically involve a portfolio manager allocating profitable trades to favored accounts after observing how positions perform during the trading day, while directing losing trades to disfavored clients. Such conduct is considered a serious breach of fiduciary duty and securities law, depriving ordinary clients of fair and equal treatment.
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The SEC's move to seek a consent judgment suggests that Leech and regulators have reached an agreement on the terms of a resolution, a common mechanism in civil enforcement actions that allows a defendant to settle without formally admitting or denying the underlying allegations. Western Asset Management, a major fixed-income investment manager, had previously seen significant client outflows following the disclosure of the regulatory investigation.
The case underscores the SEC's continued focus on misconduct at the portfolio manager level within large asset management firms, particularly practices that disadvantage retail or institutional clients in favor of select accounts. Enforcement actions in this area have historically resulted in disgorgement of ill-gotten gains, civil penalties, and industry bars for the individuals involved.
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