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Former State Street Exec Heads to Trial

Ross McLellan left State Street in 2011 following accusations of double-charging clients for transition management services. On Monday, his criminal trial began.

The criminal trial of former State Street executive Ross McLellan began Monday in Boston, nearly seven years after he and other members of the bank’s transition management unit were accused of transgressions relating to European institutional clients.

McLellan is the lone holdout fighting the original criminal charges. In 2016, federal prosecutors indicted him and ex-colleague Edward Pennings on five counts of conspiracy, securities fraud, and wire fraud. 

Pennings and Richard Boomgaardt — another former State Street executive charged with wrongdoing — have since pleaded guilty to conspiring to commit wire fraud and securities fraud.

[II Deep Dive: Former State Street Executive Pleads Guilty to Scheme to Commit Fraud]

In 2017, State Street agreed to pay a fine totaling $64.6 million to the Department of Justice and the Securities and Exchange Commission for the scheme. 

“As we have previously stated, we entered into settlements in 2014 with the UK Financial Conduct Authority and in 2017 with the DOJ and SEC relating to the overcharging of transition management clients in 2010 and 2011,” State Street said in an emailed statement. “We deeply regret that this occurred, accept responsibility for the actions of our former employees, and since the overcharging was discovered have substantially enhanced our controls. We are fully cooperating with the United States Attorney’s Office for the District of Massachusetts and the Department of Justice in connection with this matter.”

According to prosecutors’ 2016 indictment, “in or about and between February 2010 and September 2011,” McLellan, Pennings, and others, agreed to “engage in a scheme to defraud, and to obtain money and property of at least six of the bank's transition management clients in the EMEA region, by applying hidden commissions to securities trades conducted on behalf of those clients.” 

As part of their conspiracy, the group allegedly “agreed to mislead clients and others about what the bank was charging for transition management services, by (1) secretly charging commissions on securities trades conducted as part of certain transitions over and above the agreed upon fees for those transitions; (2) actively concealing the hidden commissions from the affected clients and from others within the bank; and (3) taking additional steps to cover up what they had done.”

Alleged victims of the scheme include the United Kingdom’s Royal Mail Pension Plan, the Kuwait Investment Authority, and Ireland’s National Pension Reserve Fund. 

This February, federal prosecutors brought new charges against McLellan, alleging a similar scheme relating to a US-based insurance company.

McLellan and Pennings left the bank in late 2011. 

Authorities arrested McLellan at his Hingham, Massachusetts home in 2016.

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