Ken Leech, the star bond trader charged with cherry-picking winning trades for some clients, pleaded not guilty to fraud at a hearing on Dec. 16.
Leech, 70, the former co-chief investment officer at Western Asset Management Co., faces federal charges that he steered more than $600 million in gains to favored clients while forcing losses on others. Standing with his lawyers at a hearing in federal court in New York, Leech entered not guilty pleas to all of the U.S. charges.
The criminal charges — filed in parallel with a Securities and Exchange Commission lawsuit — follow a bruising year for WAMCO, which has been bleeding investors since it disclosed U.S. authorities were looking into Leech’s trading. Pension funds and other big clients have yanked vast sums, about $65 billion so far, with more withdrawals in the works.
Leech declined to answer questions after the hearing as he entered a subway station near the courthouse. At the hearing, a prosecutor told U.S. District Judge Gregory Woods that the government didn’t anticipate adding any charges or defendants to the case.
At an earlier hearing on Dec. 16, Leech, was granted bail on a $10 million bond by Magistrate Judge Katharine Parker. In addition to the bond, Leech surrendered his passport and will limit his travel to the continental U.S.
Investigators claim Leech routinely waited to assign winning trades to accounts that produced the most revenue over a three-year period ending in October 2023.
According to the criminal indictment and the SEC’s suit, Leech’s problems began a few years ago, when his career headed into a slump, hit by interest rate moves and poor bets.
Over a few years, the assets under management at WAMCO’s marquee Macro Opportunities fund had sank by 80%, to less than $3 billion — a black eye for Leech, who advertised it as reflecting WAMCO’s best ideas, prosecutors said.
As he set out to stop withdrawals, he allegedly resorted to cherry picking trades. The government says Leech placed his daily bets, then let hours lapse before assigning them to client portfolios. Macro Opps clients got the most profitable trades, the U.S. says.
This practice allegedly came at the expense of two other strategies, Core and Core Plus, which generated less revenue for WAMCO because of differing fee structures across the funds.
“Ken Leech has an unblemished record over nearly 50 years as a trader and portfolio manager,” his lawyer, Jonathan Sack, said after the charges were filed last month. Leech received no financial benefit from the alleged misconduct, Sack said.
WAMCO, which is owned by Franklin Resources, has said it’s cooperating with investigators. The company hasn’t been accused of wrongdoing.
The case threatens what had been a stellar career for Leech, who joined WAMCO in 1990 and became CIO eight years later. In the following two decades, he helped build the firm into a fixed-income giant with his reputation for making bold and often successful calls on interest rates and credit risk.
In October 2023, WAMCO began reviewing about 17,000 trades conducted by Leech between 2021 and 2023 after a company insider flagged abnormalities in the allocations, Bloomberg previously reported.
Investors pulled tens of billions of dollars from WAMCO funds after the firm disclosed the Justice Department and SEC probes. Leech took a leave of absence in August after the SEC warned he faced an enforcement action.
Leech is charged with investment adviser fraud and securities fraud, each of which carries a maximum sentence of 20 years in prison; commodity trading adviser fraud and commodities fraud, both of which carry a top punishment of 10 years; and making false statements, which has a maximum penalty of five years.
The case is: US vs. Leech, 24-cr-00658, US District Court, Southern District of New York (Manhattan).
