World Economy

Former US Bankers Charged of Fraud

Former US Bankers Charged of FraudFormer US Bankers Charged of Fraud

Two former executives at State Street Corp. were indicted in what the US Justice Department said was a “brazen fraud” involving secret commissions applied to billions of dollars in securities trades.

Ross McLellan, 44, and Edward Pennings, 45, conspired from February 2010 to September 2011 to place commissions on fixed-income and equity trades for at least six clients of the bank’s transition management business, according to US Attorney Carmen Ortiz in Boston. That unit helped institutional clients move investments among asset managers and liquidate large portfolios, Bloomberg reported.

“The secret conversations and backroom plotting laid bare in today’s charges paint a vivid picture of a brazen fraud,” Ortiz said Tuesday in a statement. The men “plotted to overcharge their clients by millions of dollars, and to hide their tracks.”

The defrauded clients included an Irish government pension fund, a British government pension fund and a Middle East sovereign wealth fund, according to the indictment.

Both men are charged with conspiracy, securities fraud and wire fraud. McLellan, of Hingham, Massachusetts, pleaded not guilty Tuesday in federal court in Boston and a magistrate judge set bail at $250,000 secured by his home as collateral. He had shackles on his ankles and wore jeans and a faded long-sleeved T-shirt with an image on the back of a big smiling whale. Pennings is believed to be living abroad, according to Ortiz’s statement.

McLellan and Pennings “were separated from State Street several years ago,” a bank spokeswoman, Julie Kane, said in an e-mail. The indictment relates to the same six clients for which State Street’s UK unit was fined £22.9 million ($32.4 million) by the Financial Conduct Authority in January 2014, Kane said. The FCA said the bank charged clients “substantial” markups without their consent.

State Street has cooperated with US authorities for several years and “significantly strengthened” its controls and reporting mechanism, Kane said.

“The evidence will ultimately and compellingly show that Ross McLellan committed no criminal acts and had no criminal intent,” his attorney, Martin G. Weinberg, said in a statement. “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 McLellan, but by the bank for which he worked.”