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Courts

Ex-State Street exec gets prison term in transition management fraud case

Ross McLellan, former executive vice president of State Street and president of its U.S. broker-dealer unit, was sentenced Tuesday to 18 months in prison following his conviction on federal charges of conspiring to defraud at least six State Street transition management clients by applying secret commissions to billions of dollars of securities trades.

Mr. McLellan was sentenced by U.S. District Judge Leo T. Sorokin in Boston, according to a news release from the office of U.S. Attorney Andrew Lelling. The sentence includes two years of supervised release.

Mr. Lelling's office had sought a five-year prison sentence; Mr. McLellan asked the court for a 366-day sentence.

Mr. McLellan was found guilty June 26 by a federal court jury in Boston of two counts of wire fraud, two counts of securities fraud and one count of conspiracy to commit wire fraud. He 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.

Mr. McLellan and 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. He is scheduled to be sentenced Nov. 6.

Also in June 2017, 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 and was sentenced to one year of probation.

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 the clients were not to be charged trading commissions.

In 2014, State Street reached a 22.9 million ($30 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.