SEC Asks Court to Approve Consent Judgment Against Former Western Asset Co-CIO

Court approval is still required

The Securities and Exchange Commission said on October 6, 2026, that it had moved for entry of a final judgment by consent against Stephen Kenneth Leech II. Leech is the former co-chief investment officer of Western Asset Management Company LLC, which the agency identified as a registered investment adviser. The Commission had previously charged him with a multi-year cherry-picking allocation scheme. The new step is a request that a court enter judgment on terms he has accepted, not a statement that the civil case is already closed.

Leech consented without admitting the allegations in the SEC's complaint. Subject to court approval, the proposed judgment would order him to pay a $3 million penalty, impose an officer-and-director bar, and permanently enjoin him from violating antifraud provisions of the federal securities laws. He also agreed to a forthcoming associational bar. The October 6 release does not set out the duration of the officer-and-director bar, the forum in which the associational bar will be entered, or any timetable for that bar.

What the 2024 complaint alleged

The allegations the consent would leave unresolved as formal findings are set out in a complaint the SEC filed in November 2024. As alleged, from at least January 2021 through October 2023, Leech placed trades and then routinely delayed allocations until near or after futures markets set daily settlement prices. The Commission said that delay allowed him to observe price movements before the allocations were made.

On the agency's account, he assigned favored portfolios hundreds of millions of dollars in realized and unrealized first-day gains and assigned disfavored portfolios a similar amount of realized and unrealized first-day losses, on a disproportionate basis. The release presents that sequence as allegation, and the consent is expressly without admission. The period, the delayed-allocation method, and the described scale of first-day gains and losses are therefore the SEC's claims, not facts established by the proposed judgment. The release does not identify the futures markets involved, the portfolios, or the clients on either side of the allocation.

A firm penalty and a smaller individual penalty

Most of the money the SEC is associating with investor relief comes from a matter already settled at the Commission, rather than from the consent judgment still awaiting a judge. In June 2026, the Commission instituted settled public administrative proceedings against Western Asset. It ordered the firm to pay a $100 million civil penalty and established a Fair Fund to distribute money to affected investors in the disfavored portfolios.

Brent Wilner, associate director of the SEC's Los Angeles Regional Office, said the conduct by Leech and Western Asset was an egregious breach of fiduciary obligations to their clients. He said the resolution with Leech, if approved by the court, together with the SEC's prior settlement with Western Asset, will return $103 million and provide meaningful relief to harmed investors. That figure matches the two disclosed penalties added together. The release does not say how much of either sum has been collected, how a Fair Fund distribution would be calculated, or which investors in the disfavored portfolios would qualify.

An admitted obstruction plea, still unsentenced

The same month as the Western Asset administrative settlement, Leech entered a guilty plea in a criminal case. In June 2026, he pleaded guilty in U.S. District Court in the Southern District of New York to obstruction of justice charges related to false and misleading testimony he provided to the SEC during its investigation. The Commission said sentencing will take place in the coming weeks. The October 6 release reported no sentence.

That plea should not be read as an admission of the cherry-picking allegations. The SEC described the criminal charges as concerning testimony during the investigation. The civil consent, by contrast, is without admission of the complaint. The agency acknowledged assistance from the U.S. Attorney's Office for the Southern District of New York and the FBI, indicating that those offices aided the Commission. The release does not describe the testimony, the number of charges, or any sentencing recommendation.

Limits of what the record settles

The facts stated in the release support a narrow set of conclusions. Western Asset has been ordered to pay $100 million, with a Fair Fund for affected investors in disfavored portfolios. Leech has agreed, without admitting the complaint and subject to court approval, to a $3 million penalty, an officer-and-director bar, a permanent injunction against antifraud violations, and a forthcoming associational bar. He has also pleaded guilty to obstruction charges tied to testimony he gave the SEC, and sentencing remains ahead. The Commission's stated position is that court approval of his civil judgment, combined with the firm settlement, will return $103 million to harmed investors.

Anything further is analysis running into gaps the release leaves open. The favored and disfavored portfolios are not named. Gains and losses are described only as hundreds of millions of dollars and a similar amount, not as a total that can be set against the $103 million. No other individuals are identified. The release does not state whether the injunction or the bars reach activity outside the roles those remedies cover, or how and when Fair Fund money would reach investors. Those limits are not findings that the relief is adequate or inadequate.

Source

U.S. Securities and Exchange Commission published this record on 2026-10-06. Pennington Financial accessed it on 2026-10-09.