UPDATE 1-Legg Mason unit to pay $21 mln over SEC, Labor Dept charges
By Sarah N. Lynch
WASHINGTON Jan 27 (Reuters) - A unit of asset manager Legg Mason Inc will pay more than $21 million to settle a pair of civil cases with the U.S. government that accuse the company of hiding losses from investors in their retirement accounts and making certain trades that favored some clients over others.
The Securities and Exchange Commision and the U.S. Department of Labor jointly announced the settlement on Monday with Western Asset Management Co., a wholly owned subsidiary of Legg Mason based in Pasadena, California.
Under the settlement, Legg Mason will neither admit nor deny wrongdoing and will pay more than $17.4 million back to harmed employee benefit plans, plus more than $3.6 million in penalties.
"Workers invest too much in retirement plans to have them diminished by the very people they trust to grow their savings," U.S. Labor Secretary Thomas Perez said in a statement.
A Legg Mason spokeswoman said in a statement that the majority of the payments to settle the case will be covered by insurance and will not have any material impact on the company's finances.
Legg Mason, based in Baltimore, is slated to report its earnings on Friday.
Western Asset Management spokeswoman Mary Athridge said the company was pleased to have resolved the two matters with regulators.
"Western Asset has always sought to meet a high standard of client and fiduciary standards and has redoubled its efforts over the past five years to address regulatory compliance and related matters, including the strengthening of controls in the areas covered by the settlements," Athridge said in a statement.
According to the SEC and the Labor Department, the Legg Mason unit breached its fiduciary duty to some of its clients who held retirement accounts.
During much of the financial crisis, the regulators said, a coding mistake led the firm to buy about $90 million worth of restricted, prohibited private investments.
By the time company officials discovered the error, the value of the plans had plunged.
Even after the error was uncovered in October 2008, Legg Mason did not take steps to immediately reimburse clients, the two agencies said.
"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 Layne, who heads the SEC's Los Angeles regional office.
"By concealing the error, Western Asset avoided reimbursing clients for their losses," she said.
In addition to the improper investments, regulators also on Monday honed in on a separate problem uncovered by investigators involving a different set of client accounts.
The SEC said Legg Mason engaged in an inappropriate form of "cross-trading" - a practice of moving a security from one client account to another without recording the trade on a public market.
According to the SEC and the Labor Department, Western Asset Management sold off some souring asset-backed securities from some of its clients and then repurchased them for a different set of clients with a higher tolerance for risk - a move that led to unfair pricing and cost the selling clients $6.2 million.
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