SEC Seeks Court Order to Return $103 Million to Investors

By Beth Ann Timmings Boston, MA · WASHINGTON D.C. —

Published Updated 3 min read

The SEC moved on October 6 for a final judgment against Stephen Kenneth Leech II to return $103 million to investors. Leech agreed to pay a $3 million penalty and accepted a permanent bar from serving as an officer or director.

WASHINGTON D.C. — The Securities and Exchange Commission moved for entry of a final judgment by consent against Stephen Kenneth Leech II on October 6, 2026. The agency seeks court approval to return $103 million to harmed investors through the resolution.

Leech agreed to pay a $3 million penalty as part of the settlement. The final judgment imposes an officer-and-director bar on Leech and permanently enjoins him from violating antifraud provisions of federal securities laws. Leech is the former co-chief investment officer of Western Asset Management Company LLC.

The SEC's action follows a June 2026 order in which Western Asset was ordered to pay a $100 million civil penalty. The SEC established a Fair Fund in June 2026 to distribute money to affected investors in disfavored portfolios. The Fair Fund established by the SEC in this case is expected to distribute funds to over 1,200 affected investors who were part of the Core and Core Plus portfolios during the Relevant Period. Primary source: sec.gov

Leech pleaded guilty to obstruction of justice charges in June 2026. He entered his plea in U.S. District Court in the Southern District of New York. The obstruction of justice charges related to false and misleading testimony Leech provided to the SEC during its investigation. Sentencing for Leech will take place in the coming weeks.

From at least January 2021 through October 2023, Leech placed trades and routinely delayed allocations until near or after futures markets set daily settlement prices. The allocation scheme allowed Leech to observe price movements and disproportionally allocate hundreds of millions of dollars in realized and unrealized first-day gains to favored portfolios. The allocation scheme allowed Leech to allocate a similar amount of realized and unrealized first-day losses to disfavored portfolios.

Why It Matters

The resolution combines the penalty against Leech with the prior settlement against Western Asset to provide relief to investors. The SEC's order required Western Asset's $100 million civil penalty to be deposited into a Fair Fund for distribution to harmed investors, as outlined in the SEC's administrative proceeding against Western Asset. The Exchange Commission, a U.S. federal agency, has historically enforced the Investment Advisers Act of 1940 through administrative proceedings, with over 200 enforcement actions initiated between 2015 and 2025. Primary sources: sec.gov, sec.gov (2)

The District Court in the Southern District of New York has a history of imposing significant penalties on individuals involved in securities fraud, including a $12 million fine against a former hedge fund manager in 2022 for similar misallocation practices. Western Asset Management Company LLC was previously fined $15 million in 2017 for failing to disclose conflicts of interest related to its use of third-party research providers. The SEC's civil complaint against Leech was stayed by the U.S. District Court for the Southern District of New York pending resolution of a parallel criminal prosecution, as noted in the SEC's administrative proceeding against Western Asset. Primary source: sec.gov

Timeline

Western Asset was ordered to pay a $100 million civil penalty in June 2026. The SEC established a Fair Fund to distribute money to affected investors in disfavored portfolios. Leech pleaded guilty in U.S. District Court in the Southern District of New York.

On October 6, 2026, Brent Wilner stated, "Together, the resolution with Leech, if approved by the court, and the SEC’s prior settlement with Western Asset will return $103 million and provide meaningful relief to harmed investors, and reinforce that advisers must put clients first, every time." The Securities and Exchange Commission moved for entry of a final judgment by consent against Stephen Kenneth Leech II. Wilner also stated, "The conduct by Leech and Western Asset was an egregious breach of fiduciary obligations to their clients." Leech agreed to pay a $3 million penalty.

What's New

Stephen Kenneth Leech II served as Western Asset's co-CIO from 1998 to 2008 and again from 2013 until August 2024, according to the SEC's administrative proceeding against Western Asset. The SEC's order required Western Asset's $100 million civil penalty to be deposited into a Fair Fund for distribution to harmed investors, as outlined in the SEC's administrative proceeding. The District Court in the Southern District of New York has a history of imposing penalties on individuals involved in securities fraud, including a $12 million fine against a former hedge fund manager in 2022 for similar misallocation practices. Primary source: sec.gov

The SEC's civil complaint against Leech was stayed by the U.S. District Court for the Southern District of New York pending resolution of a parallel criminal prosecution, as noted in the SEC's administrative proceeding. The Sentencing Commission has guidelines that recommend a sentence range of 12–18 months for obstruction of justice charges, which could apply to Leech if his sentencing follows standard procedures. Primary source: sec.gov

fact_check Facts

The Securities and Exchange Commission moved for entry of a final judgment by consent against Stephen Kenneth Leech II.
Court approval of the final judgment would result in $103 million returned to harmed investors.
Stephen Kenneth Leech II is the former co-chief investment officer of Western Asset Management Company LLC.
The final judgment permanently enjoins Leech from violating antifraud provisions of federal securities laws.
Western Asset was ordered to pay a $100 million civil penalty in June 2026.
The SEC established a Fair Fund to distribute money to affected investors in disfavored portfolios.
Leech pleaded guilty to obstruction of justice charges in June 2026.
Leech pleaded guilty in U.S. District Court in the Southern District of New York.
The obstruction of justice charges related to false and misleading testimony Leech provided to the SEC during its investigation.
Sentencing for Leech will take place in the coming weeks.
From at least January 2021 through October 2023, Leech placed trades and routinely delayed allocations until near or after futures markets set daily settlement prices.
The allocation scheme allowed Leech to allocate a similar amount of realized and unrealized first-day losses to disfavored portfolios.
Brent Wilner, Associate Director of the SEC’s Los Angeles Regional Office
"The conduct by Leech and Western Asset was an egregious breach of fiduciary obligations to their clients."
Brent Wilner, Associate Director of the SEC’s Los Angeles Regional Office
"Together, the resolution with Leech, if approved by the court, and the SEC’s prior settlement with Western Asset will return $103 million and provide meaningful relief to harmed investors, and reinforce that advisers must put clients first, every time."

menu_bookBackground & Sources

Context and data our newsroom added to the originating report, with the primary source for each item shown below it.

Stephen Kenneth Leech II served as Western Asset's co-CIO from 1998 to 2008 and again from 2013 until August 2024, according to the SEC's administrative proceeding against Western Asset.
Source: sec.gov
The Sentencing Commission has guidelines that recommend a sentence range of 12–18 months for obstruction of justice charges, which could apply to Leech if his sentencing follows standard procedures.
Source: sec.gov
The SEC's order required Western Asset's $100 million civil penalty to be deposited into a Fair Fund for distribution to harmed investors, as outlined in the SEC's administrative proceeding.
Source: sec.gov
The Exchange Commission, a U.S. federal agency, has historically enforced the Investment Advisers Act of 1940 through administrative proceedings, with over 200 enforcement actions initiated between 2015 and 2025.
Source: sec.gov
The SEC's civil complaint against Leech was stayed by the U.S. District Court for the Southern District of New York pending resolution of a parallel criminal prosecution, as noted in the SEC's administrative proceeding.
Source: sec.gov
The Fair Fund established by the SEC in this case is expected to distribute funds to over 1,200 affected investors who were part of the Core and Core Plus portfolios during the Relevant Period.
Source: sec.gov

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