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Legg Mason Affiliate Charged With Cross Trading, Defrauding Clients

201301151401380mgbdmxav2lxcqm55frv2j5vbNew York (HedgeCo.Net) – A California-based investment adviser has been charged by the SEC for concealing investor losses that resulted from a coding error and engaging in cross trading that favored some clients over others.

Western Asset Management Company, which is a subsidiary of Legg Mason, agreed to pay more than $21 million to settle the SEC’s charges as well as a related matter announced by the U.S. Department of Labor.

According to the SEC, Western Asset breached its fiduciary duty by failing to disclose and correct a coding error that caused the improper allocation of a restricted private investment to the accounts of nearly 100 ERISA institutional clients.

“When the coding error was discovered, Western Asset put its own interests above its clients and avoided telling investors what had caused losses in their accounts,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “By concealing the error, Western Asset avoided reimbursing clients for their losses.”

In a separate order and with different clients, the SEC found that Western Asset engaged in a type of cross trading that was illegal.

“Cross trades serve a legitimate purpose and benefit both parties when done appropriately,” said Julie M. Riewe, co-chief of the SEC Enforcement Division’s Asset Management Unit. “But by moving securities across client accounts in prearranged, dealer-interposed transactions, Western Asset unlawfully deprived its selling clients of their share of the savings.”

Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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