State Street bankers charged for secret commissions scheme

Former executives caught reaping millions of dollars of illicit profits from bank’s transition management business.

Two former executives at State Street have been charged by US officials for their part in a scheme involving secret commissions within its transition management business.

Ross McLellan and Edward Pennings, both former executives at the custody bank  were charged in a five-count indictment of securities fraud and wire fraud.

It is alleged the pair conspired to add secret commissions to fixed income and equity trades executed for at least six clients of the bank’s transition management business, between February 2010 and September 2011.

US Attorney Ortiz said in a statement their “secret conversations” and “backdoor plotting” had been laid bare. 

She said: “The defendants never thought anyone would hear those conversations – conversations in which they plotted to overcharge their clients by millions of dollars, and to hide their tracks. 

“Bankers who abuse their clients’ trust in this way must be held accountable.”

The indictment comes two years after State Street’s UK transition management business was fined £22.9 million by the Financial Conduct Authority (FCA), for the scheme involving McLellan and Pennings.

Director of enforcement at the FCA, Tracey McDermott, said at the time: “State Street UK allowed a culture to develop in the UK transition management business which prioritised revenue generation over the interests of its customers.

“State Street UK’s significant failings in culture and controls allowed deliberate overcharging to take place and to continue undetected.” 

The investigation is on going and being carried out by the Federal Bureau of Investigation.

The charge of the two former employees is the latest scandal facing State Street. In January this year, State Street agreed to pay the US Securities and Exchange Commission (SEC) $12 million to settle charges of a pay-to-play scheme to win custody mandates of Ohio pension funds.