The Securities and Exchange Commission (SEC) today announced settled charges against Pasadena-based investment adviser Western Asset Management Company, LLC for failing to take reasonable steps to detect and prevent its former co-Chief Investment Officer’s alleged cherry-picking scheme.

Western Asset agreed to pay a $100 million civil penalty in connection with the settlement.

In November 2024, the Commission charged Western Asset’s former co-CIO in a litigated district court action alleging that he engaged in a cherry-picking scheme from January 2021 through October 2023 by disproportionately allocating hundreds of millions of dollars in trades with net realized and unrealized first-day gains to certain favored portfolios and hundreds of millions of dollars in trades with net realized and unrealized first-day losses to other, disfavored portfolios.

According to the SEC’s order, Western Asset failed to take reasonable steps to detect and prevent this conduct by its former co-CIO. The order finds that Western Asset was aware that its former co-CIO’s trading and allocation practices diverged from those of other portfolio managers at the firm, and that Western Asset knew or should have known about such practices, but the firm failed to take reasonable steps to ensure that the former co-CIO’s actions were consistent with the firm’s fiduciary duties and its disclosures to clients, including that its investment allocations would be done in a manner that was fair and equitable.

Additionally, the order finds that Western Asset failed to implement its policies and procedures relating to reallocations and failed reasonably to supervise its former co-CIO.

The SEC’s order finds that Western Asset willfully violated Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7 thereunder and failed reasonably to supervise its former co-CIO within the meaning of Section 203(e)(6) of the Advisers Act.

Without admitting the SEC’s findings, Western Asset agreed to a cease-and-desist order, a censure, and to pay a civil penalty of $100 million. Pursuant to the SEC’s order, the civil penalty will be deposited into a Fair Fund, and Western Asset will distribute the funds to harmed investors.