Former State Street Executive from Hingham Charged in Bank Scheme

Information in this article is from the U.S. Attorney's office. Arrests and charges do not imply conviction.

HINGHAM, MA - A Hingham man who was formerly a high-ranking bank executive faces charges for allegedly participating in a scheme to defraud at least six clients through secret commissions applied to billions of dollars of securities trades.

Ross McLellan, 44 and Edward Pennings, 45, who is believed to be living abroad, were charged in a five-count indictment with conspiring to commit securities fraud and wire fraud, as well as two counts each of securities fraud and wire fraud. McLellan, a former executive vice president of the bank who served as president of its U.S. broker-dealer unit, was arrested Tuesday morning in Hingham and will appear in U.S. District Court in Boston later today, according to the U.S. Attorney's office.

Both men were executives at State Street, according to the Boston Globe.

“The secret conversations and backroom plotting laid bare in today’s charges paint a vivid picture of a brazen fraud,” Ortiz said in a release.

According to Ortiz, the two men plotted to overcharge their clients by millions of dollars and hide their tracks. Between February 2010 and September 2011, the two, along with others, conspired to add secret commissions to fixed income and equity trades performed for at least six clients of the bank’s “transition management” business, which helps institutional clients move their investments between and among asset managers or liquidate large investment portfolios.

The commissions were allegedly charged on top of fees the clients had agreed to pay the bank, despite written instructions to the bank’s traders that generally reflected that the clients were not to be charged trading commissions. McLellan and Pennings then allegedly took steps to hide the commissions from the clients and others within the bank by directing that the commissions not be broken out in post-trade reports.

"As alleged, Ross McLellan and Edward Pennings cheated and lied to investors so that the bank could line its pockets. Actions like theirs undermine investor confidence. This case demonstrates the FBI's commitment to unraveling elaborate and complex schemes, motivated by sheer greed, that ultimately undermine our financial markets," Special Agent in Charge Shaw added.

In June 2011, an affected client asked if they were charged a commission. Pennings denied the accusation but then said, under the direction of McLellan, there were some inadvertent charges in the United States. It was not disclosed that they were intentionally charged in the U.S. and Europe. The two then allegedly attempted to mislead the bank's compliance staff.