SEC Accuses Former WAMCO Co-CIO Ken Leech of Long-Running Fraud Scheme
WASHINGTON D.C., November 25, 2024 — The Securities and Exchange Commission (SEC) announced charges on Friday against Stephen Kenneth "Ken" Leech, a former co-head portfolio manager at Western Asset Management Company LLC (WAMCO), for allegedly engaging in a fraudulent cherry-picking scheme. Leech is accused of manipulating trade allocations to benefit certain portfolios over others, a practice that violates federal securities laws.
According to the SEC's complaint, from January 2021 to October 2023, Leech executed trades and then delayed the allocation of those trades among the client portfolios he managed. This practice allowed him to observe market movements and subsequently allocate profitable trades to preferred portfolios while assigning unprofitable ones to less favored portfolios. The complaint alleges that this scheme resulted in hundreds of millions of dollars in net first-day profits for the preferred portfolios.
Sanjay Wadhwa, the Deputy Director of the SEC's Division of Enforcement, condemned the alleged actions, stating, "The scale and duration of Leech's alleged fraudulent conduct constitutes a shocking violation of his duty of trust to his clients, and clients have paid a heavy price for his violations." Wadhwa emphasized that investment advisers must always prioritize their clients' interests, while Leech is accused of neglecting this obligation for an extended period.
Andrew Dean, Co-Chief of the Asset Management Unit within the Division of Enforcement, commented on the case, describing Leech's alleged conduct as "a serious abuse of power" that personally and professionally benefited him.
The SEC filed its complaint in the U.S. District Court for the Southern District of New York, seeking various remedies including a permanent and conduct-based injunction, officer and director bars, disgorgement of unjust enrichment, pre-judgment interest, civil penalties, and more.
Simultaneously, the U.S. Attorney's Office for the Southern District of New York announced parallel charges against Leech. The SEC's ongoing investigation is being conducted by members of the Asset Management Unit and the Los Angeles Regional Office, with support from the Economic and Risk Analysis Division. The case will be overseen by a specialized team under the supervision of Daniel Loss. The SEC noted its appreciation for the cooperation of both the U.S. Attorney's Office for the Southern District of New York and the FBI in this matter.