Two former State Street executives have been charged by the Department of Justice with scheming to defraud at least six of the bank's clients through secret commissions applied to billions of dollars of securities trades.
Ross McLellan and Edward Pennings were charged with securities fraud and wire fraud as well as conspiring to commit securities fraud and wire fraud. Mr. McLellan, a former executive vice president of the bank who served as president of its U.S. broker-dealer unit, was arrested on April 5 and was scheduled to appear in U.S. District Court in Boston later in the day.
Mr. Pennings, a former managing director at State Street, is believed to be living abroad.
The secret conversations and backroom plotting laid bare in today's charges paint a vivid picture of a brazen fraud, said U.S. Attorney Carmen M. Ortiz of the District of Massachusetts in a news release announcing the indictment.
Added Ms. Ortiz: With each trade, they chipped away at the savings of thousands of retirees whose pensions they were charged with safeguarding. Bankers who abuse their clients' trust in this way must be held accountable.
The indictment alleges that, between February 2010 and September 2011, Messrs. McLellan and Pennings conspired with others to add secret commissions to fixed-income and equity trades performed for at least six clients of the bank's transition management business.
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.
Messrs. McLellan and Pennings allegedly took steps to hide the commissions from the clients and others within the bank, including by directing that the commissions not be broken out in post-trade reports.
These indictments relate to two former employees who were separated from State Street several years ago. The charges relate to the same transitions for six clients conducted by our U.K. Transition Management business during 2010 and 2011 as to which we entered into a settlement with the (Financial Conduct Authority) in 2014, said State Street spokesman Brendan Paul in an e-mailed statement.
The statement added that State Street has been cooperating with the U.S. governmental authorities about this matter for the past few years. Since 2011, we have significantly strengthened our controls and reporting mechanisms within this business.
The ongoing investigation is being conducted by the FBI. n