Former State Street Head Sentenced to 18 Months for Fraud

Ross McLellan and others were adding secret commissions to fixed-income, equity trades with institutional clients between 2010 and 2011.

A former State Street executive has been sentenced to 18 months in prison on fraud charges.

Ross McLellan, the firm’s previous executive vice president and president of its US broker-dealer division, was indicted in April 2016 for his involvement in a plan to defraud the firm’s transition management business. The Securities and Exchange Commission (SEC) charged him in May, and Judge Leo T. Sorokin, a Massachusetts federal court judge, sentenced him Tuesday.

Prosecutors wanted a five-year sentence for the ex-State Street head, who asked for a year and a day due to his previously clean record. The judge instead gave McLellan a year and a half, with two years of supervised release. 

McLellan was found guilty on June 26 for two counts of wire fraud, two counts of securities fraud, and one count of conspiracy to commit securities and wire fraud. McLellan and his associates, Edward Pennings, and Richard Boomgaardt (both former managing directors at the firm), had been adding hidden commission charges to equity and fixed-income trades for at least six institutional clients in the State Street’s transition management department between February 2010 and September 2011. The SEC charged McLellan of violating the antifraud provisions of the securities acts of 1933 and 1934.

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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.

Pennings, pleaded guilty in June 2017 and will be sentenced on November 6. Boomgaardt pleaded guilty in July 2017, but only received one year of probation at his July 2018 sentencing. 

A separate SEC complaint against McLellan is ongoing.

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