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Alternative Market Briefing

SEC charges Legg Mason affiliate Western Asset Management Company with defrauding clients

Tuesday, January 28, 2014

Bailey McCann, Opalesque New York:

The Securities and Exchange Commission (SEC) has charged Western Asset Management Company, which is a subsidiary of Legg Mason, with concealing investor losses that resulted from a coding error and engaging in cross trading that favored some clients over others. The company has agreed to pay more than $21m to settle the SEC’s charges as well as a related matter announced today by the U.S. Department of Labor.

Western Asset serves as an investment manager primarily to institutional clients, many of which are ERISA plans. According to the SEC order, the company breached its fiduciary duty by failing to disclose and promptly correct a coding error that caused the improper allocation of a restricted private investment to the accounts of nearly 100 ERISA clients. The private investment that was off-limits to ERISA plans had plummeted in value by the time the coding error was discovered. Under the terms of its own agreements Western Asset was required to pay back those losses, however it failed to disclose the losses until two years later and after the company had liquidated the securities.

In a separate order involving a different set of client accounts, the SEC finds that Western Asset engaged in a type of cross trading that was illegal. The SEC’s order finds that during the fi......................

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