Western Asset Management Co., a unit of Franklin Resources, will pay a $100 million civil penalty to settle US Securities and Exchange Commission charges related to former co-chief investment officer Kenneth Leach’s alleged $600 million cherry-picking scheme, regulators said Friday. The settlement is one of the largest announced by the SEC during the second term of US President Donald Trump. Leach’s criminal trial is scheduled to begin on June 15 in Manhattan. Prosecutors allege that the scheme ran from January 2021 to October 2023. Leach, 71, has pleaded ‘not guilty’. Wamco, identified as his former employer, pleaded not guilty.

Once a star portfolio manager at Wamco, Leech was indicted in November 2024 on one count of fraud for improperly favoring several clients’ accounts while allocating trades, a practice known as cherry-picking, and one count of making false statements.

The SEC says Leach’s trades were not ‘fair and equitable’ Authorities said Leach managed US Treasury derivative trades that performed well in his first-day favored portfolio by following a “macro opportunities” strategy, which he said reflected his best ideas, and followed “everything trade-in”. and “Core Plus” strategy. Prosecutors said Leach became particularly suited to support the macro opportunities portfolio after Russia’s invasion of Ukraine in 2022 and the loss of Russian debt on Credit Suisse debt when the Swiss bank collapsed in 2023.

The SEC said that while California-based Vamco knew Leach’s trading and allocation practices diverged from ‘its peers’, they failed to properly supervise them or ensure their allocations were “fair and equitable” to customers. In a regulatory filing, Franklin said Wamco agreed to settle as a “business decision” to avoid prolonged litigation, and the settlement ended investigations by the SEC and the Justice Department. A spokeswoman for Leach and his attorneys declined to comment. Wamco’s assets under management were $228.9 billion as of March 31, compared with $381.1 billion in June 2024, a month before the investigation into Leach’s trading was first revealed. One mutual fund that Leach helped manage, Western Asset Core Plus Bond, lagged more than 95% of its peers in 2022 and 2024, having largely outperformed since 2014, Morningstar data showed. Franklin, based in San Mateo, California, ended March with $1.68 trillion in assets under management.