Western Asset Management to Pay $100M SEC Penalty Over Cherry-Picking Scheme
Western Asset Management Company LLC will pay $100 million to settle Securities and Exchange Commission charges that the firm failed to detect and prevent a cherry-picking scheme carried out by its former co-chief investment officer, Stephen Kenneth Leech II, according to an SEC order issued this week.
The SEC found that Leech disproportionately allocated trades with first-day gains to favored portfolios – primarily in the firm’s Macro Opportunities strategy – while directing trades with first-day losses to other portfolios in its Core and Core Plus strategies. The conduct ran from January 2021 through October 2023.
Western Asset, which had approximately $179 billion in assets under management as of December 2025, consented to the order without admitting or denying the SEC’s findings.
The SEC charged Leech separately in November 2024 in a civil complaint filed in the U.S. District Court for the Southern District of New York. A parallel criminal prosecution is pending; the civil action was stayed in January 2025 pending its resolution.
The SEC said Leech placed trades beginning at approximately 5:00 a.m. PT but entered the majority of his allocation instructions after 3:00 p.m. PT – the time the relevant exchange set daily settlement prices. That gap gave Leech the opportunity to observe intraday price movement before assigning trades to specific portfolios.
Western Asset’s own compliance policies required allocations to be completed no later than end of day and its training materials called for allocations to be finalized “reasonably promptly after execution.” The firm’s chief compliance officer warned in an August 2021 internal email that delayed allocations created risk that market movement could influence allocation decisions, and cited prior SEC enforcement actions involving similar practices.
Despite that awareness, the SEC found that multiple Western Asset personnel – including supervisory and compliance staff – knew Leech did not document allocation instructions at or near the time of his trades, and the firm did not take steps to evaluate whether the pattern was consistent with its fiduciary obligations to clients.
The $100 million penalty will be distributed as a fair fund to investors in the Core and Core Plus portfolios harmed during the relevant period. Western Asset is responsible for administering the distribution and must submit a disbursement calculation to SEC staff within 90 days of the order.
The SEC censured Western Asset and ordered it to cease and desist from further violations of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940. The order also found the firm failed to reasonably supervise Leech.
Western Asset said it conducted its own investigation, retained outside counsel, and implemented additional policies and procedures regarding trade allocation practices.
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