A former State Street Corp. (STT) executive was arrested on charges he conspired to defraud an insurance company by secretly overcharging it on fixed-income and equity trades' fees.
Kevin Walker was accused by federal prosecutors in Boston Friday of participating in the scheme that also involved a senior managing director at State Street and their supervisor, Ross McClellan. Mr. McClellan, a former executive vice president at the Boston-based bank, was charged last year with defrauding clients by charging them hidden commissions on billions of dollars in trades.
The State Street unit the men worked for helped institutional clients move investments among asset managers and liquidate large portfolios. In State Street's case, the bank's fees for conducting transactions consisted of a per-trade charge, referred to as a "commission," "markup," or "spread." While the bank told clients its commissions would be fully disclosed and agreed upon in advance, the U.S. said Messrs. Walker and McClellan and the third employee, who wasn't identified, applied hidden commissions above and beyond what the insurance company had agreed to pay.
"This development is related to the overcharging of transition management clients in 2010 and 2011, which was the subject of our settlements" with U.S. and U.K. regulators, the bank said in a statement. "We deeply regret that this occurred."
Nicholas Lewin, a lawyer for Mr. Walker, didn't immediately return a voice-mail message seeking comment.