Investor Ken Leech charged over alleged $600mn ‘cherry-picking’ scheme

Financial Times07:44

Well-known bond investor Ken Leech was charged with criminal fraud on Monday for allegedly orchestrating a $600mn “cherry-picking” scheme that improperly allocated trades to particular portfolios at ...

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The US Securities and Exchange Commission also launched a parallel civil case against Leech. \nWestern has had a record $53bn in outflows since its owner Franklin Templeton disclosed an SEC investigation and put Leech on leave in August. \nOf more than 500 trades that had first-day gains of more than $500,000, Leech allocated more than 90 per cent to Macro Opportunities, and conversely allocated more than 90 per cent of trades with big first-day losses to Core and Core Plus, according to the indictment handed down in Manhattan.\n“The statistical probability that this pattern occurred by random chance is less than one in one trillion,” the SEC said. “Leech effectively stole assets from disfavoured portfolios and, in doing so, breached the fiduciary duties he owed to his clients and violated the antifraud and other provisions of the federal securities laws.”\nLeech “accelerated his scheme” in March 2023, the SEC said, around the same time as he shifted millions of dollars of his own investments to the same accounts he was favouring. \nLeech’s lawyer Jonathan Sack said Leech “received no benefit from the alleged misconduct” and planned to “defend himself vigorously.”\n“Ken Leech has an unblemished record over nearly 50 years as a trader and portfolio manager,” Sack said. “These unfounded allegations ignore key facts, including the fundamental differences between distinct fixed-income strategies and the irrelevance of first-day performance to managing these strategies.”\nFranklin, which has announced plans to change Western’s management structure, had no immediate comment on the charges. Its share price is down 22 per cent this year.\nThe Macro Opportunities fund carried fees that were four times higher than those charged by the much-larger Core strategies, the indictment said. It once had as much as $14bn in assets but a large position in Russian debt was “nearly wiped out” after the country’s full-scale invasion of Ukraine in 2022, and a “significant investment” in Credit Suisse debt was washed out when that bank failed in 2023, the indictment said.\nLeech, 70, faces a total of four fraud counts and one count of making false statements in the DoJ case. \nCopyright The Financial Times Limited 2023\n© 2023 The Financial Times Ltd. All rights reserved. Please do not copy and paste FT articles and redistribute by email or post to the web.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"-2","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2486830095"}