SEC moves for final judgment against former Western Asset co-CIO

The Securities and Exchange Commission today moved for entry of a final judgment by consent against Stephen Kenneth Leech II, former co-chief investment officer of Western Asset Management Company LLC. The proposed judgment would impose a $3 million civil penalty, an officer-and-director bar, a permanent injunction against violations of antifraud provisions, and a forthcoming associational bar, pending court approval.

The action stems from a complaint filed in November 2024 alleging that, from at least January 2021 through October 2023, Leech engaged in a cherry-picking allocation scheme. He allegedly placed trades and delayed allocations until near or after futures markets set daily settlement prices, allowing him to observe price movements and allocate hundreds of millions of dollars in realized and unrealized first-day gains to favored portfolios while assigning comparable gains and losses to disfavored portfolios.

In June 2026, the Commission settled public administrative proceedings against Western Asset, ordering the firm to pay a $100 million civil penalty and establishing a Fair Fund to distribute money to investors in the disfavored portfolios. Together, the Leech judgment and the Western Asset settlement would return $103 million to harmed investors, according to Brent Wilner, Associate Director of the SEC's Los Angeles Regional Office.

Leech also pleaded guilty in June 2026 in the U.S. District Court for the Southern District of New York to obstruction of justice charges related to false and misleading testimony provided to the SEC. Sentencing is pending. The SEC acknowledged assistance from the U.S. Attorney's Office for the Southern District of New York and the FBI.

Court approval of the consent judgment is required before the penalties and bars become effective, completing the SEC's enforcement action against both the individual and the firm.