Western Asset Management Company, the fixed-income arm of Franklin Resources, has agreed to pay $100 million to settle SEC charges that it let a senior executive run a cherry-picking operation for years without catching it. The civil penalty, announced on June 5, resolves allegations that the firm’s supervisory failures enabled its former co-chief investment officer, Ken Leech, to direct favorable trade results to select portfolios while dumping losses on others.
What happened and who got hurt
The SEC’s case centers on what regulators describe as a multi-year cherry-picking scheme. Leech allegedly made trades, waited to see which ones performed well, and then assigned the winners to certain portfolios while routing the losers elsewhere.
The affected portfolios were concentrated in WAMCO’s Core and Core Plus strategies. Investors in those strategies bore the brunt of the scheme’s losses, receiving unfavorable allocations that eroded their returns over time.
As part of the settlement, the entire $100 million will be distributed through a Fair Fund designed to compensate those harmed investors. WAMCO also accepted a censure and a cease-and-desist order, though it neither admitted nor denied the SEC’s findings.
