Franklin Templeton's Western Asset Management agreed to pay a $100mn civil penalty to resolve an SEC investigation into former star bond investor Ken Leech. The settlement addresses allegations that Leech orchestrated a massive trading scheme while managing portfolios at the firm.

Regulators say Leech engaged in a $600mn cherry-picking scheme, improperly allocating trades to specific portfolios to benefit certain clients while disadvantaging others. He faces separate criminal fraud charges brought by US prosecutors in November 2024, with his trial scheduled to begin June 15 in New York federal court.

The SEC found that Western Asset Management failed to take reasonable steps to detect and prevent Leech's misconduct. The firm was aware that his trading practices diverged significantly from other portfolio managers yet did not implement adequate oversight controls. This represents a significant compliance failure at one of the asset management industry's major players.

Franklin Templeton did not immediately respond to requests for comment on the settlement terms. The case highlights ongoing regulatory scrutiny of trading practices and portfolio allocation methods across the investment management sector, particularly for firms handling large institutional client assets.