- Associated Press - Tuesday, April 5, 2016

BOSTON (AP) - Two former State Street Corp. executives have been charged in a scheme to defraud at least six clients through secret commissions applied to billions of dollars in securities trades.

Ross McLellan and Edward Pennings were charged with securities fraud, wire fraud and conspiracy. McLellan was an executive vice president and Pennings was a senior managing director at State Street.

An Irish government pension fund, a British government pension fund and a Middle Eastern Sovereign Wealth Fund were among the defrauded clients, the indictment alleges.

McLellan, 44, of Hingham, pleaded not guilty during his arraignment in federal court Tuesday. Prosecutors said Pennings, 45, who was based in London, has not yet been arrested.

McLellan’s lawyer, Martin Weinberg, said his client didn’t commit a crime and called the indictment “an overreaction to past failures to control practices on Wall Street.”

“Every major bank charges its clients markups on its bond transactions in order to generate profits. And every dollar that is at issue in today’s charge was received not by Mr. McLellan, but by the Bank for which he worked,” Weinberg said in a statement.

A lawyer for Pennings couldn’t immediately be identified.

In 2014, State Street paid a fine of about $37.8 million in a settlement with the UK Financial Conduct Authority after its UK Transition Management business charged six clients markups on certain transitions in addition to the agreed-upon management fee or commission.

In a prepared statement, State Street said the criminal charges announced Tuesday relate to the same transitions for the clients named in the settlement.

“As disclosed in our regular financial filings we have 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 statement said.

The indictment alleges that between February 2010 and September 2011, McLellan, Pennings and others conspired to add secret commissions to fixed income and equity trades performed for at least six clients of the bank’s transition management business. The business helps institutional clients move their investments between and among asset managers or liquidate large investment portfolios.

McLellan and Pennings are accused of taking steps to hide the commissions from the clients and others within the bank.

“With each trade, they chipped away at the savings of thousands of retirees whose pensions they were charged with safeguarding,” U.S. Attorney Carmen Ortiz said in a statement.

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