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Franklin's Western Asset to Settle SEC Trading Probe for $100M
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Key Takeaways
BEN's Western Asset agreed to pay a $100 million civil penalty to settle SEC charges.
The settlement resolves investigations by the SEC and the Department of Justice.
BEN said the agreement allows Western Asset to avoid prolonged litigation and focus on clients.
Franklin Resources, Inc.'s (BEN - Free Report) subsidiary, Western Asset Management Company ("Western Asset"), has agreed to pay a $100 million civil penalty to settle Securities and Exchange Commission ("SEC") charges related to its former co-chief investment officer Kenneth Leech's alleged cherry-picking scheme.
The SEC said Western Asset failed to properly supervise Leech and maintain adequate controls to detect his alleged trade-allocation misconduct. To resolve the matter, the firm agreed to pay a $100 million civil penalty, which will be distributed to affected investors through a Fair Fund, while neither admitting nor denying the regulator's findings.
In a regulatory filing, Franklin stated that Western Asset agreed to the settlement as a business decision to avoid prolonged litigation and focus on serving clients. The company also noted that the resolution concludes investigations by the SEC and the Department of Justice ("DOJ").
History of Western Asset's Trade-Allocation Investigation
The matter stems from allegations that Leech engaged in a cherry-picking scheme involving U.S. Treasury derivative trades between January 2021 and October 2023. According to the SEC, Leech delayed allocating trades among client accounts until after observing market movements, allowing profitable trades to be allocated to certain favored portfolios, while less favorable trades were assigned to others.
In November 2024, the SEC charged Leech with fraud, alleging that he allocated hundreds of millions of dollars of net first-day gains to favored portfolios and a similar amount of net first-day losses to disfavored portfolios.
As part of its broader investigation, the SEC also examined Western Asset's supervisory controls. The regulator concluded that the firm knew or should have known that Leech's trading and allocation practices differed from those of other portfolio managers and failed to adequately oversee his activities. The SEC further found that Western Asset did not properly implement its trade-reallocation policies and failed to reasonably supervise its former co-CIO.
In December 2025, Franklin disclosed that the DOJ was prepared to resolve its investigation against Western Asset. The development signaled progress toward resolving the regulatory probes surrounding the firm.
How the Settlement Benefits Franklin
The settlement removes a major regulatory overhang tied to one of Western Asset's most significant legal matters in recent years. While the $100 million penalty represents a notable cost, the resolution concludes investigations by the SEC and DOJ and eliminates the uncertainty associated with prolonged regulatory proceedings.
With the matter largely behind it, Franklin can focus on strengthening Western Asset's compliance framework, retaining client assets and rebuilding investor confidence following a period of heightened scrutiny over the firm's trading practices.
BEN’s Zacks Rank & Price Performance
Over the past six months, Franklin’s shares have risen 34.6% against the industry’s 16% decline.
Other Financial Firms’ Progress to Fix Regulatory Issues
In May 2026, the Federal Reserve officially terminated its 2023 enforcement actions against UBS Group AG (UBS - Free Report) tied to the collapse of Archegos Capital Management in 2021. The move marks the closure of one of the major enforcement matters inherited by UBS following its emergency acquisition of Credit Suisse in 2023.
The termination of the Fed’s Archegos-related enforcement action represents another milestone in UBS’ broader remediation efforts. The removal of this regulatory overhang could support UBS’ long-term integration efforts, profitability and operational efficiency.
In April 2026, Goldman Sachs Group (GS - Free Report) cleared a key regulatory overhang as the Federal Reserve Board terminated its 2018 enforcement action tied to the bank’s foreign exchange (FX) trading operations. The case originated in May 2018, when the Fed imposed a $54.75-million fine on Goldman Sachs for unsafe and unsound practices in its forex business.
For GS, the development marks the resolution of a legacy issue tied to industry-wide FX scrutiny. While the case underscored past control deficiencies, its closure highlights the bank’s progress in strengthening compliance and restoring regulatory confidence, allowing it to move forward without the burden of an outstanding enforcement action.
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Franklin's Western Asset to Settle SEC Trading Probe for $100M
Key Takeaways
Franklin Resources, Inc.'s (BEN - Free Report) subsidiary, Western Asset Management Company ("Western Asset"), has agreed to pay a $100 million civil penalty to settle Securities and Exchange Commission ("SEC") charges related to its former co-chief investment officer Kenneth Leech's alleged cherry-picking scheme.
The SEC said Western Asset failed to properly supervise Leech and maintain adequate controls to detect his alleged trade-allocation misconduct. To resolve the matter, the firm agreed to pay a $100 million civil penalty, which will be distributed to affected investors through a Fair Fund, while neither admitting nor denying the regulator's findings.
In a regulatory filing, Franklin stated that Western Asset agreed to the settlement as a business decision to avoid prolonged litigation and focus on serving clients. The company also noted that the resolution concludes investigations by the SEC and the Department of Justice ("DOJ").
History of Western Asset's Trade-Allocation Investigation
The matter stems from allegations that Leech engaged in a cherry-picking scheme involving U.S. Treasury derivative trades between January 2021 and October 2023. According to the SEC, Leech delayed allocating trades among client accounts until after observing market movements, allowing profitable trades to be allocated to certain favored portfolios, while less favorable trades were assigned to others.
In November 2024, the SEC charged Leech with fraud, alleging that he allocated hundreds of millions of dollars of net first-day gains to favored portfolios and a similar amount of net first-day losses to disfavored portfolios.
As part of its broader investigation, the SEC also examined Western Asset's supervisory controls. The regulator concluded that the firm knew or should have known that Leech's trading and allocation practices differed from those of other portfolio managers and failed to adequately oversee his activities. The SEC further found that Western Asset did not properly implement its trade-reallocation policies and failed to reasonably supervise its former co-CIO.
In December 2025, Franklin disclosed that the DOJ was prepared to resolve its investigation against Western Asset. The development signaled progress toward resolving the regulatory probes surrounding the firm.
How the Settlement Benefits Franklin
The settlement removes a major regulatory overhang tied to one of Western Asset's most significant legal matters in recent years. While the $100 million penalty represents a notable cost, the resolution concludes investigations by the SEC and DOJ and eliminates the uncertainty associated with prolonged regulatory proceedings.
With the matter largely behind it, Franklin can focus on strengthening Western Asset's compliance framework, retaining client assets and rebuilding investor confidence following a period of heightened scrutiny over the firm's trading practices.
BEN’s Zacks Rank & Price Performance
Over the past six months, Franklin’s shares have risen 34.6% against the industry’s 16% decline.
Franklin currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Financial Firms’ Progress to Fix Regulatory Issues
In May 2026, the Federal Reserve officially terminated its 2023 enforcement actions against UBS Group AG (UBS - Free Report) tied to the collapse of Archegos Capital Management in 2021. The move marks the closure of one of the major enforcement matters inherited by UBS following its emergency acquisition of Credit Suisse in 2023.
The termination of the Fed’s Archegos-related enforcement action represents another milestone in UBS’ broader remediation efforts. The removal of this regulatory overhang could support UBS’ long-term integration efforts, profitability and operational efficiency.
In April 2026, Goldman Sachs Group (GS - Free Report) cleared a key regulatory overhang as the Federal Reserve Board terminated its 2018 enforcement action tied to the bank’s foreign exchange (FX) trading operations. The case originated in May 2018, when the Fed imposed a $54.75-million fine on Goldman Sachs for unsafe and unsound practices in its forex business.
For GS, the development marks the resolution of a legacy issue tied to industry-wide FX scrutiny. While the case underscored past control deficiencies, its closure highlights the bank’s progress in strengthening compliance and restoring regulatory confidence, allowing it to move forward without the burden of an outstanding enforcement action.