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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.
Leech himself is facing separate fraud charges that the SEC filed on November 25, 2024. Those proceedings remain ongoing.
The supervisory failure at the heart of the case
The SEC’s charges against WAMCO aren’t really about one rogue trader. They’re about a firm that, according to the regulator, failed to build or enforce the controls that would have caught the behavior. The SEC’s position is that WAMCO’s oversight apparatus either wasn’t looking for those signals or wasn’t acting on them.
The settlement also resolves related investigations by the Department of Justice and other regulatory bodies, effectively drawing a line under the institutional side of the case even as Leech’s personal legal battles continue.
Franklin Resources, the parent company that trades under the ticker BEN, has worked to separate the WAMCO situation from its broader business, which spans traditional asset management, digital assets, and a growing presence in the crypto space through products like its Bitcoin ETF and tokenized money market funds.
What this means for investors
For the broader asset management industry, the case serves as a pointed reminder that trade allocation practices remain squarely in the SEC’s crosshairs.
Investors in WAMCO’s Core and Core Plus strategies during the relevant period should monitor SEC filings for details on the claims process and timeline for the Fair Fund distribution.
Franklin Templeton has been explicit that this enforcement action is tied strictly to traditional fixed-income operations and has no connection to its digital assets division, including its Bitcoin ETF or its tokenized fund products.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
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