Former State Street executives Ross McLellan and Edward Pennings were indicted Tuesday on scheming to defraud at least six institutional investor clients.

McLellan and Pennings added “secret commissions” to billions of dollars of trades for the bank’s transition management clients between February 2010 and September 2011, claimed the US Attorney for Massachusetts and Federal Bureau of Investigation.

“The secret conversations and backroom plotting laid bare in today’s charges paint a vivid picture of a brazen fraud.”Overcharged clients are believed to include the UK’s Royal Mail Pension Plan, Ireland’s National Pension Reserve Fund, and the Kuwait Investment Authority.

The US authorities charged McLellan and Pennings with conspiring to commit fraud, as well as two counts each of securities and wire fraud. McLellan, former global head of State Street Global Markets’ portfolio solutions group, was arrested Tuesday morning in Hingham, Massachusetts, where he lives.

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

According to the indictment, McLellan and Pennings—ex-head of the Europe, Middle East, and Africa (EMEA) solutions group—allegedly charged commissions on top of the agreed fees, “despite written instructions… that generally reflected that the clients were not to be charged trading commissions.”

The pair also allegedly hid these secret commissions from the clients and others within State Street, by instructing traders to not break out these overcharges in post-trade reports. They also actively tried to cover up their activities, the prosecutors alleged.

The indictment revealed an anonymous third co-conspirator: a managing director and head of the transition management desk for the EMEA region in London who reported to Pennings.

Court documents detailed phone and email conversations between McLellan and Pennings discussing the alleged scheme.

On March 2, 2010, Pennings instructed the co-conspirator to not talk about plans to overcharge what is believed to be the Kuwait Investment Authority (KIA) on its fixed-income transition “with anyone… because it’s not going to help our story… Don’t even share it with the rest of the team,” the indictment said.

McLellan also allegedly told Pennings to “‘take less’ on one portion of the portfolio and ‘take a lot more’ on another portion of the portfolio,” the document said. “‘You can still take one or two on the outgoing side… I mean, no one is going to f-cking notice that…’.”

Regarding the same trade, the prosecutors said McLellan and the co-conspirator asked traders for the daily high and low prices of securities the bank had traded for KIA “so that they could determine the amount of the commissions to be applied to each security without attracting the client’s attention.”

McLellan and Pennings allegedly conducted similar activities with Ireland’s National Pension Reserve Fund. The indictment said Pennings told the co-conspirator to be “very, very creative, which we will,” about adding commissions.

Using a volume weighted average price account to transition the fund’s “significant amount of equities,” McLellan, Pennings, and others were able to allegedly charge a commission of two basis points on each of the US equities trade executed without the client knowing.

Ireland’s comptroller and auditor general’s report showed markups were an estimated €2.65 million ($3 million), or more than five times the contractual fees.

In March 2011, McLellan and Pennings again allegedly conspired to defraud what is believed to be the Royal Mail Pension Plan on a £1.3 billion ($1.84 billion) transition.

After promising no commissions beyond the flat management fee of 1.75 basis points, McLellan allegedly asked Pennings, “How much do you want to take?”, to which Pennings replied, “whatever, let’s see how we go.”

McLellan allegedly asked Pennings, “How much do you want to take?”, to which Pennings replied, “whatever, let’s see how we go.”The prosecutors said McLellan instructed a trader to charge one basis point commission to each trade conducted, and “to delete any reference to the commissions from the trading results he sent to the transition manager assigned to the project.”

When Royal Mail discovered the undisclosed charges, McLellan, Pennings, and the co-conspirator allegedly lied to both the client and State Street’s compliance staff and said the commissions “had been charged by mistake.”

At McLellan’s direction, the bank refunded the pension plan $1 million in commissions it had secretly charged on US trades, “but not the approximate $2 million the bank had, unbeknownst to the fund, charged on European trades,” the indictment said.

Following Royal Mail’s inquiry into trading costs, McLellan and Pennings left State Street effective October 5, 2011.

Since then, McLellan founded Harbor Analytics, a consultancy focused on helping asset owners evaluate transition costs and quality, in late 2012.

“I’ve lived in this industry for so long, it’s sometimes hard to see it—but I think it’s fair to say that the whole [transition management] model is flawed,” McLellan told CIO in February 2013.

“Look, commissions have been so compressed in this industry,” he continued. “It is difficult to survive charging one or two basis points on international equities, or half a cent a share on US equities, without making money somewhere else. Whether it’s FX [foreign exchange], sales trading, or something else, that’s the business—but it should be disclosed. Pension plans should understand what they’re getting themselves into.”

His lawyer claimed McLellan “committed no criminal acts and had no criminal intent,” and that he will fully defend himself.

“Every major bank charges its clients markups on its bond transactions in order to generate profits,” he added. “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.”

Since leaving State Street, Pennings took the bank to an employment tribunal in London for unfair dismissal in November 2012, during which he claimed his then-managers—including McLellan—had approved plans to make secret profits on bond trades.

“Every dollar that is at issue in today’s charge was received not by Mr. McLellan, but by the bank for which he worked.”State Street had a culture of “don’t ask, don’t tell” about these markups, Pennings added.

However, a judge at the tribunal ruled that Pennings had repeatedly lied to clients and named him guilty of “gross misconduct,” which warranted his dismissal.

In January 2014, the UK’s Financial Conduct Authority charged State Street a £22.8 million fine for acting “with complete disregard for the interests of its customers,” within its transition management unit.

The regulator found clients were overcharged by more than $20 million, which has since been refunded.

State Street responded in a statement that today’s indictments relate to employees who were “separated” from the bank years ago. The spokesperson added it has also significantly bolstered its controls and reporting mechanisms for the transition management business since 2011.

McLellan took his defense to Twitter Tuesday mid-afternoon:

Don’t believe everything you read.

— Ross McLellan (@harboranalytics) April 5, 2016

Related: Ross McLellan Emerges from Transition Management’s Shadow & State Street’s McLellan, Pennings Depart Amidst Question Over Transition Cost