A former executive at State Street Corp. is set to stand trial for allegedly defrauding the bank’s clients by charging them secret commissions on billions of dollars in trades.
According to Reuters, jury selection was completed on Monday (June 3) in Boston federal court in the case of Ross McLellan, a former executive VP at State Street who is accused of securities fraud and wire fraud. He has pleaded not guilty and denies involvement in any crimes.
“What he denies is that any unlawful or improper commissions were charged,” Martin Weinberg, McLellan’s lawyer, said in court.
McLellan is one of four former employees who have faced charges by the U.S. Justice Department that they participated in schemes to overcharge clients so that State Street could earn millions of dollars.
Two of the former executives, Edward Pennings and Richard Boomgaardt, pleaded guilty in 2017 and are expected to testify at McLellan’s trial.
Last year, the Securities and Exchange Commission (SEC) announced that State Street had agreed to pay more than $35 million in a settlement.
“Agreeing to a fee arrangement and then secretly tucking in hidden, unauthorized markups is fraudulent mistreatment of customers,” said Paul G. Levenson, director of the SEC’s Boston regional office, the department that investigated the overcharges.
In addition, there was a settlement between State Street and the U.K. Financial Conduct Authority in which the bank paid a fine of 22.9 million pounds, or $38 million at the time, for charging six clients mark-ups on certain transactions.
According to prosecutors, from 2010 to 2011, McLellan, Pennings, Boomgaardt and others conspired to add secret commissions for trades made for six clients, including a Middle Eastern sovereign wealth fund and Irish and British government pension funds.
Prosecutors allege that McLellan also participated in a separate scheme to charge hidden fees to fixed-income trades conducted for funds advised by a New York-based insurer, which generated about $700,000 in overcharges.