Western Asset Management Company, a Pasadena-based fixed-income manager and subsidiary of Franklin Templeton, agreed to pay a $100 million civil penalty to settle SEC charges that it failed to prevent a cherry-picking trade-allocation scheme run by its former co-Chief Investment Officer. The June 2026 settlement marks one of the largest adviser-misconduct penalties of the year and involves a Fair Fund mechanism to distribute recovered money to harmed investors.
What happened
The SEC’s June 5, 2026 administrative order charged WAMCO with failing to take reasonable steps to detect and prevent its former co-CIO Stephen Kenneth Leech II from disproportionately allocating profitable trades to favored portfolios while sending losing trades to other accounts. The alleged misconduct spanned from January 2021 through October 2023.
Leech allegedly delayed trade allocations until after intraday price movements were known, then directed trades with first-day gains to certain favored portfolios and trades with first-day losses to disfavored accounts. WAMCO is accused of knowing or should have known that his allocation patterns diverged sharply from other portfolio managers but did not adopt sufficient controls to ensure fairness.
Key facts
| Firm | Western Asset Management Company, LLC (WAMCO) |
| Location | Pasadena, California |
| Parent company | Franklin Resources / Franklin Templeton |
| Individual | Stephen Kenneth Leech II, former co-CIO |
| SEC penalty | $100 million civil money penalty |
| Settlement date | June 5, 2026 |
| Distribution | Fair Fund to harmed investors |
The firm and individual involved
WAMCO is one of the largest fixed-income investment managers in the United States, overseeing hundreds of billions in assets across mutual funds, institutional accounts, and separate mandates. As a subsidiary of Franklin Templeton, it operates under a compliance framework that the SEC found inadequate in this instance.
Leech, 72, of Pasadena, served as co-Chief Investment Officer and had broad authority over trade allocation decisions. The SEC’s separate action against Leech, filed in November 2024, alleged that he used his position to systematically benefit certain clients at the expense of others. WAMCO did not admit the SEC’s findings but agreed to cease and desist from future violations and accepted a formal censure.
What investors lost
The $100 million penalty reflects the scale of harm caused by the cherry-picking scheme. While the SEC did not publish a per-investor damage calculation, cherry-picking systematically disadvantages disfavored accounts by saddling them with losing trades while favored clients capture gains. Over a multi-year period, the cumulative underperformance for affected portfolios can be substantial.
The Fair Fund established by the SEC order is designed to return penalty proceeds to harmed investors to the extent feasible. Investors who held WAMCO-managed accounts during the January 2021 to October 2023 period may be eligible for distributions.
Red flags that should have been caught
Investment advisory firms are required to implement trade-allocation policies that ensure fair treatment across all client accounts. WAMCO had such policies on paper but allegedly failed to follow them. The SEC found that Leech’s allocations consistently deviated from the firm’s own procedures and that no adequate supervisory review caught the pattern.
Controls that should have flagged the misconduct include automated pre-trade allocation plans, post-trade reconciliation reports comparing first-day performance across accounts, and independent compliance audits of senior portfolio managers. WAMCO’s failure to detect the scheme over nearly three years suggests a breakdown in multiple layers of oversight.
What affected investors can do now
Investors who held WAMCO-managed accounts between January 2021 and October 2023 should review their statements for abnormal trade allocation patterns. A securities attorney can assess whether an account was among the disfavored portfolios and whether the investor has a claim for recovery.
Because WAMCO is censured and subject to a cease-and-desist order, affected clients may also file complaints through the SEC’s investor protection portal. Documentation of account performance relative to comparable strategies will strengthen any claim.
Haselkorn & Thibaut fights for investor recovery
Haselkorn & Thibaut is a securities law firm founded by former Wall Street defense attorneys who shifted their practice to represent investors. The firm has recovered over $520 million for clients in securities matters and maintains a 98 percent success rate in resolved nontraded REIT cases. Attorneys are AV Preeminent rated through Martindale-Hubbell, designated as Super Lawyers, and hold a 5.0-star client review average. The firm operates on a contingency basis — no recovery, no fee.
Contact Haselkorn & Thibaut today
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