Former Western AM investment chief charged for 'cherry-picking'

The Securities and Exchange Commission (SEC) has charged former Western Asset co-chief investment officer Ken Leech for "engaging in a multi-year scheme to allocate favourable trades to certain portfolios."

The SEC alleges Leech engaged in the conduct from at least January 2021 through to October 2023.

The practice is known as 'cherry-picking', where Leech also allegedly aversely allocated unfavourable trades to other portfolios.

The SEC believes Leech placed trades with brokers and would routinely wait until later in the trading day to allocate the trades among clients in the portfolios he managed.

Throughout the delay between placing and allocating trades, it "gave him the opportunity to observe price movements", which subsequently allowed Leech to allocate a substantial amount - hundreds of millions of dollars - of first-day gains and losses, respectively, to his favoured and disfavoured portfolios.

The SEC has since charged Leech with violating antifraud and other provisions of the federal securities laws. In light of the SEC's effort, the US Attorney's Office for the Southern District of New York has also announced charges against the former investment chief.

Acting director of the SEC's division of enforcement Sanjay Wadhwa said Leech's allegedly fraudulent conduct was a "shocking betrayal" of his clients.

"Investment advisers are at all times obliged to perform their functions, including trade allocations, in a manner that puts their clients' interests first," Wadhwa reiterated.

"As alleged, Leech abdicated that all-important duty for years."

Co-chief of the division of enforcement's asset management unit Andrew Dean described the act as an "egregious abuse of power."

"By hand-picking trades and sending them to portfolios he favoured, Leech allegedly stood to profit personally and professionally," he said.

The investigation is being conducted with the assistance of the Federal Bureau of Investigation.