CIO Stole Millions by 'Cherry Picking' Trades!

SEC v. Stephen Kenneth Leech — U.S. Securities and Exchange Commission Litigation Release No. 26666, dated October 6, 2026.

Stephen Kenneth Leech, former co-CIO of Western Asset Management, has consented to a final judgment in an SEC case. He is accused of a multi-year "cherry-picking" scheme where he manipulated trade allocations to favor certain portfolios with gains and disfavor others with losses. The scheme involved hundreds of millions of dollars in gains and losses over nearly three years.

In Plain English

Imagine a stock trader who gets to decide which of their clients gets the winning lottery tickets and which gets the losing ones, after knowing the results. That's what happened here. The trader would place a bunch of stock trades, then wait to see if they went up or down. If they went up, they'd assign those winning trades to favored clients. If they went down, they'd assign those losing trades to other clients. This happened for years, moving hundreds of millions of dollars in gains and losses.

Disclaimer: all facts are drawn from the SEC's own filings; the claims described are allegations unless and until a court rules or the parties settle, and some cases end in dismissal.

How the Alleged Scheme Worked

1. Trade Placement From at least January 2021 through October 2023, Stephen Kenneth Leech, a co-chief investment officer at Western Asset Management, managed various investment strategies. He would place trades in omnibus accounts that combined orders for multiple clients.
2. Delayed Allocation Instead of allocating trades to specific portfolios at the time of execution, Leech routinely waited hours, often until near or after the end of the trading day.
3. Observing Market Movements This delay allowed Leech to observe whether the market value of his trades increased or decreased before deciding which client portfolios would receive them.
4. Cherry-Picking Gains Leech then disproportionately allocated trades with first-day gains to favored portfolios, known as 'Favored Portfolios'.
5. Shifting Losses Conversely, he allocated trades with first-day losses to disfavored portfolios, referred to as 'Disfavored Portfolios'.
6. Massive Financial Impact During the relevant period, this scheme resulted in hundreds of millions of dollars in net first-day gains being allocated to Favored Portfolios and a similar amount in losses to Disfavored Portfolios.
7. Statistical Improbability The SEC alleged that the statistical probability of this pattern of allocation occurring by random chance was less than one in one trillion.
8. Personal Investment Shift In March 2023, as Leech accelerated his scheme, he shifted millions of dollars of his own personal investments through his deferred compensation plan into these Favored Portfolios.

The Enforcement Action

The SEC moved for a final judgment by consent against Stephen Kenneth Leech II, former co-chief investment officer of Western Asset Management Company LLC. Leech was charged with a multi-year cherry-picking allocation scheme. Without admitting the allegations, Leech consented to a $3 million penalty, an officer-and-director bar, and permanent injunctions. Western Asset previously settled for $100 million. Leech also pleaded guilty to obstruction of justice.

Original SEC litigation release ↗ · Browse all cases