Edward Pennings, a former managing director at State Street Corp. (STT), agreed to plead guilty to federal charges that he conspired to defraud at least six State Street transition management clients by applying secret commissions to billions of dollars of securities trades.
Mr. Pennings and Ross McLellan, a former executive vice president of State Street and president of its U.S. broker-dealer unit, were charged in April 2016 by the U.S. Department of Justice with securities fraud and wire fraud as well as conspiring to commit the offenses.
Mr. Pennings pleaded guilty to one count of conspiracy, and the Justice Department agreed to dismiss the remaining charges against him, according to court documents filed Tuesday in U.S. District Court in Boston. He could face up to five years in prison along with a fine of up to $250,000.
Mr. McLellan has pleaded not guilty to all charges and his case is scheduled for trial in U.S. District Court in Boston in October. No hearing date for Mr. Pennings’ plea deal has been set.
Also on Tuesday, Richard Boomgaardt, former senior managing director at State Street and head of its portfolio solutions group for Europe, the Middle East and Africa, was charged with one count of conspiring to commit wire fraud and securities fraud in connection with the case against Messrs. Pennings and McLellan.
Messrs. Boomgaardt and Pennings live in the U.K.
According to court documents, Messrs. McLellan, Pennings and Boomgaardt conspired to add secret commissions to fixed-income and equity trades performed for at least six clients of State Street’s transition management business between February 2010 and September 2011. The commissions were charged on top of fees the clients had agreed to pay the bank and despite written instructions to the bank’s traders that generally reflected that the clients were not to be charged trading commissions.
In 2014, State Street reached a £22.9 million ($37.7 million) settlement with the U.K. Financial Conduct Authority for deliberately overcharging the six clients a total of $20.2 million between June 2010 and September 2011.