Former Investment Executive Pleads Guilty to Obstructing Federal Investigation Into Client Fraud Scheme

NEW YORK — A former chief investment executive has pleaded guilty in federal court after admitting he obstructed a federal investigation into a fraudulent trading scheme that favored certain investment clients at the expense of others.

According to the U.S. Attorney’s Office for the Southern District of New York, S. Kenneth Leech II, 72, of Pasadena, California, pleaded guilty to one count of obstructing justice after providing false and misleading testimony to the U.S. Securities and Exchange Commission (SEC) during its investigation into his conduct while serving as Chief Investment Officer of Western Asset Management Company (WAMCO).

Federal prosecutors said Leech deliberately attempted to mislead SEC investigators as they examined a years-long scheme involving the improper allocation of investment trades among client accounts. The guilty plea stems from his efforts to conceal how those trades were assigned and to obstruct regulators from uncovering the underlying fraud.

According to court filings, the fraudulent activity occurred between 2021 and October 2023, while Leech oversaw investment strategies managing billions of dollars in client assets.

Investigators determined that Leech carried out a trading practice commonly known as “cherry-picking,” a fraudulent scheme in which investment managers delay assigning completed trades until they know whether those trades generated gains or losses. Rather than allocating trades fairly, profitable trades are directed to favored accounts while losing trades are shifted to other investors.

Federal authorities said Leech systematically allocated trades that generated strong first-day gains to a flagship investment strategy and selected clients he favored. Trades that performed poorly during their first trading day were instead assigned to other client accounts whose investors had no knowledge that they were absorbing losses for the benefit of others.

According to prosecutors, the scheme involved approximately $600 million in first-day trading gains directed toward favored clients and approximately $600 million in first-day trading losses assigned to other investment strategies and clients. Those clients included both institutional investors and retail investors, including pension plans and retirement savings accounts managed by Western Asset Management.

As an investment adviser, Leech owed every client the same fiduciary duty, requiring him to act honestly, fairly, and in each client’s best financial interests. Federal prosecutors said his conduct violated those obligations by intentionally benefiting one group of investors while disadvantaging another through manipulated trade allocations.

During the SEC’s investigation, prosecutors said Leech attempted to conceal the scheme by falsely testifying that he had already determined where trades would be allocated before placing them. Investigators concluded that evidence contradicted those statements and showed the allocations were delayed until after the trades’ initial performance became known, allowing profitable trades to be selectively assigned.

Obstruction of justice is a federal offense involving efforts to interfere with investigations, judicial proceedings, or regulatory actions through false statements, destruction of evidence, witness tampering, or other deceptive conduct. In this case, prosecutors alleged that Leech’s false testimony was intended to prevent regulators from fully uncovering the fraudulent trading practices.

Leech pleaded guilty before U.S. District Judge Gregory H. Woods. The obstruction of justice charge carries a maximum statutory sentence of five years in federal prison. His sentencing is currently scheduled for September 21, 2026, when the court will consider the advisory federal sentencing guidelines along with the nature of the offense and other statutory sentencing factors.

The investigation was conducted by the Federal Bureau of Investigation (FBI) with assistance from the U.S. Securities and Exchange Commission (SEC). The prosecution is being handled by the Securities and Commodities Fraud Task Force of the U.S. Attorney’s Office for the Southern District of New York. The case is being prosecuted by Assistant U.S. Attorney Thomas S. Burnett, Assistant U.S. Attorney Peter J. Davis, and Special Assistant U.S. Attorney Lindsey Keenan.

Financial regulators continue to emphasize that investment advisers occupy positions of significant trust and are legally required to treat all clients fairly when managing investment portfolios. Federal enforcement actions involving fiduciary misconduct, securities fraud, and market manipulation remain a priority as regulators work to protect investors and preserve confidence in the integrity of U.S. financial markets.

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