RegulationMay 22, 2020

Ex-State Street Exec Loses Fraud Appeal

Ross McLellan was convicted in 2018 of plugging hidden commissions into trades.

Reported by Larry Light

A former State Street executive lost his appeal on a criminal fraud conviction, which gives him an 18-month prison stint.

Ross McLellan’s 2018 conviction centered on his role in a scheme to bilk overseas institutional investors with hidden commissions for billions of dollars’ worth of trades in US securities. But the Court of Appeals for the First Circuit didn’t accept his contention that, since the trades involved international communications, the wire fraud conviction was invalid.

McLellan, the onetime president of State Street’s US broker/dealer division, was found guilty on two counts of wire fraud, two counts of securities fraud, and one count of conspiracy to commit securities and wire fraud.

Between February 2010 and September 2011, he and two associates had been adding hidden charges to equity and fixed-income trades for at least six institutional clients in State Street’s transition management department.

The service helps large clients move investments between asset managers or liquidate large portfolios. The goal is keeping down the costs of making these shifts.

These commissions were not authorized by the bank’s traders. According to US Attorney Andrew E. Lelling, McLellan and others “took steps to hide the commissions from the clients and others within the bank,” such as by not reporting the secret charges in post-trade reports. The other two pleaded guilty. The two men, Edward Pennings and Richard Boomgaardt, testified against McLellan at his trial.