Former State Street Executives Indicted on Fraud Charges
April 05 2016 - 3:40PM
Dow Jones News
Federal prosecutors have charged two former senior executives at
State Street Corp. with running a scheme to defraud clients by
secretly charging commissions on billions of dollars in securities
trades.
The March 31 indictment, unsealed Tuesday, charges Ross
McLellan, formerly president of the bank's U.S. broker-dealer unit,
and Edward Pennings, who worked in the bank's London office, with
securities and wire fraud. It alleges they secretly overcharged at
least six clients, including Irish and British government pension
funds and a Middle Eastern sovereign-wealth fund.
"The secret conversations and backroom plotting laid bare in
today's charges paint a vivid picture of a brazen fraud," said
Carmen M. Ortiz, U.S. attorney for Massachusetts, in a statement
accusing the men of reaping millions of dollars in profits from the
scheme, said to have run from February 2010 through September
2011.
Prosecutors didn't name State Street in the indictment,
referring to it as a Boston-based financial services company and
"one of the world's largest asset managers and custody banks."
A State Street senior vice president, Carolyn Cichon, confirmed
that the indictment relates to former employees "who were separated
from State Street several years ago," and that it involves the same
matter that resulted in an earlier settlement with British
regulators.
The U.K. Financial Conduct Authority in 2014 fined State
Street's U.K. unit £ 22.9 million ($32.4 million) for overcharging
clients. "Since 2011 we have significantly strengthened our
controls and reporting mechanisms within this business," Ms. Cichon
said in a statement.
Martin G. Weinberg, a lawyer for Mr. McLellan, who was arrested
Tuesday in Hingham, Mass., said in a statement that his client did
not commit any crimes and called the charges "an overreaction to
past failures to control practices on Wall Street."
Mr. Weinberg added, "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."
Neither Mr. Pennings nor any representative for him could be
immediately reached. Prosecutors said they believe Mr. Pennings,
who reported to Mr. McLellan while at State Street, is living
abroad.
Prosecutors allege that Messrs. McLellan and Pennings charged
trading commissions on top of the fees that clients had agreed to
pay the bank, and despite written instructions to the bank's
traders that clients were not to be charged trading
commissions.
The indictment quoted a December 2010 email from Mr. Pennings to
Mr. McLellan, regarding a bid for business from a Dublin-based
public pension fund, as saying, "Gotta win this one! Any ideas how
to get more revenue would be appreciated…My tax dollars are after
all paying for their reckless spending."
When a London-based pension fund in June 2011 asked about some
charges, the men tried to mislead both the client and the bank's
compliance staff, the indictment said.
(END) Dow Jones Newswires
April 05, 2016 15:25 ET (19:25 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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