The US Securities and Exchange Commission (SEC) has filed fraud charges against former State Street executive Ross McLellan, the regulator announced on Friday.
The charges follow a similar indictment from the Attorney for Massachusetts and the Federal Bureau of Investigation (FBI), released publicly in April.
McLellan defrauded a number of State Street transition management clients through “hidden and unauthorized mark-ups,” the SEC claimed.
“State Street employees, under the supervision of McLellan, made misrepresentations concerning pricing in connection with certain transition engagements,” the SEC’s announcement stated. “These misrepresentations were made in a variety of communications to customers, including false trading statements, pre-trade estimates, and post-trade reporting.”
Along with two “co-schemers,” McLellan allegedly helped produce “false and misleading statements” for a customer—the UK’s Royal Mail Pension Plan—when confronted about the charges.
McLellan then instructed colleagues to “misleadingly characterize the hidden mark-ups as a ‘fat finger error’ and as ‘inadvertent commissions’,” the SEC said.
The overcharging practice generated roughly $20 million in additional revenue for State Street, the regulator estimated. This included $3 million from the Royal Mail pension, $9.7 million from a Middle East sovereign wealth fund (believed to be the Kuwait Investment Authority), $3.7 million from an Irish government agency (believed to be the country’s National Pension Reserve Fund), and $3 million from a number of other significant transition management clients in the UK and the Netherlands.
Following the prior charges, McLellan’s lawyer claimed his client had “committed no criminal acts and had no criminal intent,” and indicated that he will fully defend himself.
“Every major bank charges its clients markups on its bond transactions in order to generate profits,” the attorney added.
The US Attorney for Massachusetts and the FBI also charged Edward Pennings, another ex-State Street executive, last month. Pennings has not been charged by the SEC.
Following Royal Mail’s inquiry into trading costs, McLellan and Pennings left State Street effective October 5, 2011.
Read the SEC complaint in full.
Related: Reluctant Voices [CIO’s 2012 investigation of transition management] & Fraud Charges, Arrest for Ex-State Street Transition Managers
Note: An earlier version of this article linked $3M of allegedly excess revenue to US, UK, and Dutch clients. That figure does not in fact involve US investors.