Regulation

Former Western Asset Co-CIO Leech Consents to $3 Million SEC JudgmentAdd Securities.io to your preferred sources on Google

The U.S. Securities and Exchange Commission on October 6, 2026, moved for entry of a final judgment by consent against Stephen Kenneth Leech II, the former co-chief investment officer of registered investment adviser Western Asset Management Company LLC, in the multi-year cherry-picking case the agency charged in November 2024.

Without admitting the allegations in the SEC’s complaint, Leech consented to entry of a final judgment that, subject to court approval, would order him to pay a $3 million penalty, impose an officer-and-director bar, and permanently enjoin him from violating the antifraud provisions of the federal securities laws. Leech also agreed to a forthcoming associational bar against him, the SEC said.

“The conduct by Leech and Western Asset was an egregious breach of fiduciary obligations to their clients,” said Brent Wilner, Associate Director of the SEC’s Los Angeles Regional Office. “Together, the resolution with Leech, if approved by the court, and the SEC’s prior settlement with Western Asset will return $103 million and provide meaningful relief to harmed investors, and reinforce that advisers must put clients first, every time.”

The November 2024 Complaint

The SEC filed its complaint against Leech on November 25, 2024, in the U.S. District Court for the Southern District of New York. The complaint alleged that from at least January 2021 through October 2023, Leech placed trades in omnibus brokerage accounts that combined the trades of multiple Western Asset clients and then routinely delayed allocating the trades to specific portfolios, often until near or after futures markets set daily settlement prices. The delay allowed Leech to observe price movements before deciding where each trade would be allocated, the SEC alleged.

According to the complaint, Leech allocated more than $600 million of trades at net first-day gains to portfolios the SEC designated as Favored Portfolios and more than $600 million of trades at net first-day losses to Disfavored Portfolios. The statistical probability that this pattern occurred by random chance was less than one in one trillion, the complaint alleged. Favored Portfolios had 34 consecutive months of net first-day gains during the period, while Disfavored Portfolios had net first-day losses in every month. When specifically directing an allocation to one group or the other, Leech allocated more than 90 percent of trades with more than $1 million in first-day gains to Favored Portfolios and more than 90 percent of trades with more than $1 million in first-day losses to Disfavored Portfolios, the SEC alleged.

Favored Portfolios primarily included portfolios in the Western Asset Macro Opportunities strategy, which Leech formed in 2012 and for which he served as lead portfolio manager. Disfavored Portfolios primarily included portfolios in the firm’s US Core and US Core Plus strategies, which are benchmarked to the Bloomberg US Aggregate Index. The complaint alleged that the management fee on the Macro Opps portfolios Leech managed ran between approximately 40 and 115 basis points of portfolio market value, compared with approximately 5 to 45 basis points for the Core and Core Plus portfolios he managed, and that each dollar of assets in Macro Opps could generate approximately four times as much revenue for Western Asset as each dollar in Core and Core Plus.

The SEC alleged that Leech benefited professionally and financially from the scheme. His cash incentive compensation generally amounted to approximately half of the firm’s profits, ranging from $28 million to $30 million per year between 2018 and 2020 before he was reduced to $21 million in 2022, according to the complaint. In March 2023, a single month in which Leech allocated trades with more than $100 million in net first-day gains to Favored Portfolios and more than $100 million in net first-day losses to Disfavored Portfolios, he increased his deferred compensation investment in Macro Opps portfolios from approximately $142,000 to approximately $19 million, the complaint alleged. Between January 2023 and March 2023, he reduced his deferred compensation investment in Core and Core Plus portfolios from approximately $19.4 million to approximately $5.6 million, and by August 2023 it stood at approximately $143,000.

The complaint charged Leech with violating Sections 17(a)(1) and (3) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and Sections 36(a) and 37 of the Investment Company Act of 1940.

Leech joined Western Asset as a portfolio manager in 1990, served as its chief investment officer from 1998 to 2008 and again from 2013 to August 2024, and shared CIO responsibilities with a co-CIO from August 2023, according to the complaint. Western Asset announced on August 21, 2024, that Leech was on a leave of absence and that it had determined to close the Macro Opps strategy; the strategy’s assets were liquidated on October 29, 2024. Western Asset has been an SEC-registered investment adviser since 1971 and had approximately $308 billion in assets under management as of December 2023, the complaint states.

Western Asset’s $100 Million Order

The Commission’s June 5, 2026, settled administrative order against Western Asset found that the firm willfully violated Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-7 and failed reasonably to supervise Leech within the meaning of Section 203(e)(6) of the Advisers Act. Western Asset was censured, ordered to cease and desist, and ordered to pay a $100 million civil penalty, consenting to the order without admitting the findings.

The order created a Fair Fund under Section 308(a) of the Sarbanes-Oxley Act of 2002 for current and former investors in Core and Core Plus portfolios who were financially harmed during the period. Western Asset was required to deposit $100 million into an escrow account within 10 days of the order and to submit a proposed pro-rata distribution calculation to SEC staff within 90 days. The firm bears all costs of administering the Fair Fund, and no portion may be paid to any account in which Western Asset or any of its current or former officers or directors has a financial interest. The order states that Western Asset conducted its own investigation, hired an outside law firm, and implemented additional policies and procedures regarding trade allocation practices. As of December 2025, Western Asset had approximately $179 billion in assets under management in the United States, according to the order.

On January 21, 2025, the district court judge stayed the SEC’s action against Leech pending resolution of a parallel criminal prosecution, United States v. S. Kenneth Leech II, in the Southern District of New York, according to the June order. In June 2026, Leech pleaded guilty in that court to obstruction of justice charges related to false and misleading testimony he provided to the SEC during its investigation; the SEC said sentencing will take place in the coming weeks. The SEC acknowledged the assistance of the U.S. Attorney’s Office for the Southern District of New York and the FBI.