Kenneth Leech, the former co-chief investment officer of Western Asset Management Co., has been charged with fraud in a cherry-picking scheme.

Accusations of Fraudulent Scheme

Leech is accused of favoring certain clients over others in the allocation of trades. The charges include four counts of fraud and one count of making false statements. Leech allegedly engaged in this fraudulent scheme from January 2021 to October 2023, involving over $600 million in trades.

Civil Charges by the SEC

The U.S. Securities and Exchange Commission (SEC) has also filed civil charges against Leech. The allegations have raised concerns about Leech's fiduciary responsibilities to his clients, who were allegedly unaware of the preferential treatment.

Internal Investigation by Western Asset Management

Western Asset Management, a subsidiary of Franklin Resources, is currently reviewing trades executed by Leech as part of its internal investigation. The firm has experienced significant client withdrawals, resulting in a quarterly loss for Franklin Resources.

Denial of Allegations

Leech, who was placed on leave earlier this year, has denied the allegations through his attorney.

Broader Implications for Investor Trust

The legal proceedings against Leech are expected to have broader implications for investor trust in asset management firms.