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Ex-State Street exec convicted in transition management fraud case

Ross McLellan, former executive vice president of State Street and president of its U.S. broker-dealer unit, on Tuesday was found guilty by a jury in federal court of conspiring to defraud at least six State Street transition management clients by applying secret commissions to billions of dollars of securities trades.

A jury in U.S. District Court in Boston convicted Mr. McLellan of two counts of wire fraud, two counts of securities fraud and one count of conspiracy to commit wire fraud, said Liz McCarthy, spokesman for the U.S. attorney's Boston office.

Mr. McLellan was acquitted of one count of wire fraud on a charge that he also added hidden fees to fixed-income trades conducted for funds advised by an unnamed insurance company.

Sentencing is scheduled for Oct. 10, Ms. McCarthy said.

Mr. McLellan along with Edward Pennings, a former managing director at State Street, 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 in June 2017 to one count of conspiracy, and the Justice Department agreed to dismiss the remaining charges against him, according to court documents.

Also last June, 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 a count of wire fraud in connection with the scheme. Mr. Boomgardt pleaded guilty to the charge last July.

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 ($30.4 million) settlement with the U.K.'s Financial Conduct Authority for deliberately overcharging the six clients a total of $20.2 million from June 2010 to September 2011.