Ken Leech, the former co-chief investment officer at Western Asset Management Co., pleaded guilty to lying to regulators during an investigation into his trading as part of a last-minute deal with prosecutors who dropped the most serious fraud charges against him.
The former star bond trader admitted at a court hearing in New York that he lied to the US Securities and Exchange Commission. The plea deal, reached days before a trial was scheduled to start, opens the possibility that he’ll get no more than a year in prison.
Prosecutors in 2024 charged Leech with illegally cherry-picking $600 million in winning trades between 2021 and 2023. The 72-year-old faced five criminal charges, including securities fraud and investment adviser fraud, each of which carried up to 20 years in prison.
Under the deal, Leech pleaded guilty to a single count that officially carries a maximum of five years. US District Judge Gregory Woods will determine Leech’s punishment, but prosecutors agreed to a sentencing guideline range of six to 12 months.
“I knew that I was giving false and misleading testimony on my trade allocation process,” Leech told the judge, acknowledging that what he did was wrong. “I knew that by giving that testimony I would impede the SEC’s proceeding.”
Sentencing is scheduled for Sept. 21 and Leech will be allowed to remain free on bail. He had previously pleaded not guilty to the charges against him and claimed he had acted in good faith, in the belief that his allocations benefited all of the portfolios he managed.
Leech’s wife sat in the gallery behind him, occasionally dabbing her eyes with a tissue. After the hearing, Leech shook hands with his lawyers, looking glum.
The last-minute plea allows Wamco, the bond firm owned by Franklin Resources Inc., to minimize the public scrutiny that would have come from a trial in the high-profile case. The firm recently agreed to pay $100 million to settle US Securities and Exchange Commission claims that it knew or should have known about Leech’s trading practices and “failed to reasonably supervise” him. Wamco didn’t admit liability as part of the settlement.
Wamco has been under pressure since 2024 when it disclosed an SEC investigation of Leech, at the time the firm’s co-chief investment officer, triggering an outflow of tens of billions in client assets and prompting key employees to depart to competitors.
The sentencing guidelines in Leech’s case also suggest there could be a fine of no more than $40,000, but his lawyer told the judge he believes the deal does not allow for any forfeiture or restitution. Leech continues to face a parallel SEC case and civil litigation by investors.
‘Huge Win’
“I think this is a very favorable deal,” said Seth Zuckerman , a former New York prosecutor who is now a criminal defense lawyer. “It’s a huge win.”
Zuckerman, who isn’t involved with the case, said dropping the fraud charges drastically reduces the potential punishment Leech faced and virtually eliminates the financial penalties that could have been imposed.
Prosecutors in 2024 charged Leech with illegally cherry-picking trades, assigning winning trades to favored clients and losing trades to others between 2021 and 2023.
At a trial, which was set to take six weeks, government lawyers were prepared to present jurors with expert testimony and reams of data analyzing Leech’s trading. They claimed Leech often waited hours after making trades, to see whether they were profitable, before assigning the winners to clients that generated higher fees for Wamco.
Court filings disclosed that Leech’s trading came under scrutiny in fall 2023, when a junior analyst was confused by a trade allocation he had made, Bloomberg previously reported. The analyst took his concerns to a more senior portfolio manager, eventually leading to a broader review by the firm. The analyst and portfolio manager haven’t been identified publicly.
Assistant US Attorney Peter Davis said that the government would have presented evidence at trial that would show that Leech lied to the SEC about how he allocated trades.
“He waited for hours to make allocation decisions for many trades,” handing more than $650 million in gains to favored clients while causing an equal amount of losses to his other customers, Davis said.