Ken Leech, a prominent bond trader and former co-chief investment officer at Western Asset Management Co. (Wamco), is facing criminal charges and civil allegations from the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), Bloomberg reports.
The charges center on allegations of a scheme to allocate profitable trades to specific accounts, enriching both Leech and his flagship strategy while allegedly harming others.
The SEC and DOJ allege that Leech, 70, systematically delayed assigning profitable trades from his Macro Opportunities strategy to client portfolios. This alleged practice, spanning less than three years, reportedly generated approximately $600 million in first-day gains for Macro Opportunities, while allegedly disadvantaging the firm’s Core and Core Plus strategies.
Prosecutors claim Leech’s actions were a response to a downturn in his performance, marked by significant losses in investments such as Russian debt (following the Ukraine invasion) and Credit Suisse Group AG debt. These losses led to an 80% drop in assets under management for the Macro Opportunities strategy, which Leech had touted as reflecting Wamco’s best investment ideas.
According to the SEC, Leech’s daily trading routine involved placing numerous bets in general accounts before delaying allocation decisions for hours. This departure from Wamco’s standard procedures allegedly allowed him to strategically assign winning trades to accounts maximizing revenue, potentially boosting his substantial compensation—reportedly ranging from $28 million to $30 million annually between 2018 and 2020. The SEC also points to Leech increasing his deferred compensation in the Macro Opportunities strategy while decreasing it in other strategies, notably boosting his March 2023 investment to roughly $19 million from around $142,000.
Leech’s attorney has vehemently denied the accusations, calling them “unfounded” and promising a vigorous defense.
Wamco, a subsidiary of Franklin Resources Inc., disclosed the investigations earlier this year, prompting significant investor withdrawals totaling tens of billions of dollars. Leech subsequently took a leave of absence in August. Wamco has stated its full cooperation with the ongoing investigations.
The investigation was initiated last October after an internal Wamco employee flagged irregularities in trade allocations. The DOJ has charged Leech with investment adviser fraud, securities fraud, commodity trading adviser fraud, commodities fraud, and making false statements—charges carrying maximum prison sentences ranging from five to 20 years. Leech has been summoned to appear in Manhattan federal court by December 6. Despite the allegations against Leech, Wamco emphasizes its continued commitment to serving its clients.
