Kenneth Leech, once a high-profile bond portfolio manager at Western Asset Management Co (Wamco), entered a guilty plea on Friday to a single count of obstructing a U.S. Securities and Exchange Commission proceeding, court records show. The plea prevents a criminal trial that had been scheduled to begin the following Monday in Manhattan federal court.
Leech, a former co-chief investment officer at Wamco, had been charged earlier with four counts of fraud alleging an extensive "cherry-picking" scheme - the practice of assigning winning trades to favored investors while allocating losing trades elsewhere. Prosecutors had alleged the scheme exceeded $600 million and spanned from January 2021 through October 2023. Under the terms of the guilty plea, those fraud charges will be dropped.
The obstruction charge arises from allegations that Leech lied under oath during sworn SEC testimony in March 2024. Prosecutors point to an exchange in which Leech answered "yes" when asked whether he had "an allocation in mind" when placing trades, and they contend that his testimony was false.
Leech, 72, faces recommended federal sentencing guidelines that translate to a possible term of six to 12 months in prison. That exposure is materially lower than the potential penalties he would have faced had he been convicted on the original fraud counts. Attorneys for Leech declined to comment. A spokesperson for U.S. Attorney Jay Clayton in Manhattan did not immediately provide comment.
Regulatory and corporate actions tied to the matter have already been taken. On June 5, Wamco agreed to pay a $100 million civil penalty to resolve SEC civil charges that it failed to properly supervise Leech. The asset manager did not admit wrongdoing as part of that settlement. Wamco operates as part of Franklin Resources, which includes brands such as Franklin Templeton.
According to allegations laid out by authorities, Leech waited to observe how trades performed on their first day before retroactively assigning them to client accounts, a practice prosecutors said was intended to elevate revenue for Wamco and to inflate Leech's compensation. The complaint describes a pattern of steering positively performing trades into portfolios labeled "Macro Opportunities," which Leech characterized as reflecting his best investment ideas, while allocating underperforming trades to "Core" and "Core Plus" portfolios.
Prosecutors further allege that Leech intensified efforts to support Macro Opportunities after that strategy suffered losses tied to Russian debt in 2022 and Credit Suisse debt in 2023.
Leech was indicted in November 2024, roughly three months after Wamco placed him on leave. His sentencing is scheduled for September. The disclosures and investigations have had tangible business consequences for Wamco: the firm reported $228.9 billion in assets under management at the end of March, a decline of 40% from June 2024. Franklin Resources reported $1.68 trillion in assets under management at the end of March.
Readers should note that legal and regulatory timelines remain in progress, and the guilty plea resolves only the obstruction count while related civil and supervisory settlements have already been announced by the firm.