Two Ex-State Street Execs Charged With Defrauding Pension Fund Clients


U.S. prosecutors on Tuesday announced charges against two former State Street executives who allegedly defrauded a handful of clients, including pension funds in the U.K. and Ireland.

Prosecutors allege that between 2010 and 2011, the two execs added hidden fees to transactions conducted by the pension funds. It didn’t take long for one of the funds to ask whether it had been overcharged.

More from Reuters:

Ross McLellan, a former State Street executive vice president, was arrested on charges including securities fraud and wire fraud, prosecutors said. The indictment was filed in federal court in Boston, where the custody bank is based.

The indictment also charged Edward Pennings, a former senior managing director at State Street who is believed to be living overseas and was not arrested, prosecutors said.


The case followed a 2014 settlement between State Street and the UK Financial Conduct Authority in which the bank paid a fine of £22.9 million (about $37.8 million) for charging the six clients “substantial mark-ups” on certain transitions.

According to the U.S. indictment, McLellan, Pennings and others conspired from February 2010 to September 2011 to add secret commissions to fixed income and equity trades performed for the six clients of a unit of the bank.

The commissions came on top of fees the clients had agreed to pay and despite written instructions to the bank’s traders that the clients should not be charged trading commissions, prosecutors said.

Both McLellan and Pennings took steps to hide the commissions from the clients and others within the bank, prosecutors said. They said the scheme had come to light after one client in 2011 inquired whether it had been overcharged.

The case is U.S. v. McLellan, U.S. District Court, District of Massachusetts, 16-cr-10094.


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