The recent turmoil surrounding Credit Suisse has had a significant impact on investors in the bank's additional tier 1 (AT1) bonds. These bonds were declared worthless by Switzerland's financial regulator, resulting in substantial losses for bondholders.
Ken Leech, a former star manager at Western Asset Management Co. (Wamco), has been accused of defrauding clients during this crisis. Leech had heavily invested in the AT1 bonds and allegedly resorted to fraudulent activities to salvage his investment strategy.
Leech's fraudulent scheme involved allocating millions of dollars from his personal investments into the Macro Opportunities strategy and directing profitable trades to this strategy at the expense of others. An investigation into Leech's activities was triggered by an employee who flagged irregularities, resulting in significant outflows for Wamco.
The decision by Switzerland's financial regulator to declare Credit Suisse's AT1 bonds worthless has caused historic losses for bondholders. This has led to over 100 claims and lawsuits from investors seeking to recover their losses.
Leech's actions included manipulating trade allocations and steering profitable trades into the Macro Opportunities portfolio. His compensation was closely tied to the success of the strategies he managed.
Leech's attorney plans to contest the allegations, arguing that the government's claims overlook critical facts. Wamco is not under investigation.
The fallout from the Credit Suisse crisis has implications for investors and institutions, highlighting the complexities and risks of high-stakes finance.