A former executive vice president of State Street Corp. was convicted yesterday by a federal jury in Boston in connection with engaging in a scheme to defraud at least six of the bank’s clients through secret commissions applied to billions of dollars of securities trades.

Ross McLellan, 47, of Hingham, was convicted of one count of conspiring to commit securities fraud and wire fraud, two counts of securities fraud and two counts of wire fraud. Sentencing is scheduled for Oct. 10.

“McLellan defrauded State Street clients, violating his fiduciary duties and abusing his clients’ trust along the way,” Andrew E. Lelling, United States Attorney for the District of Massachusetts, said in a statement. “With systematic precision, McLellan and his conspirators added secret commissions to securities trades and took steps to conceal the scheme. In doing so, beyond directly defrauding institutional investors, McLellan chipped away at the savings of thousands of retirees whose pensions he was supposed to safeguard. After only five hours of deliberations, a jury found McLellan guilty of five of six counts in the indictment.”

McLellan, a former executive vice president of State Street who was global head of its Portfolio Solutions Group and president of its U.S. broker-dealer unit, was indicted in April 2016 along with Edward Pennings, 47, of Surrey, England, a former senior managing director of State Street and the head of its Portfolio Solutions Group for Europe, the Middle East and Africa.

Pennings pleaded guilty in June 2017 and is scheduled to be sentenced on July 18, 2018. Also in June 2017, Richard Boomgaardt, 44, of Sevenoaks, England, a former managing director of State Street, was charged separately and plead guilty in July 2017 to one count of conspiracy to commit securities fraud and wire fraud. Boomgaardt is scheduled to be sentenced on July 31, 2018.

Between February 2010 and September 2011, McLellan, Pennings, and Boomgaardt conspired to add secret commissions to fixed income and equity trades performed for at least six clients of the bank’s “transition management” business, which helps institutional clients move their investments between and among asset managers or liquidate large investment portfolios.

The commissions were charged on top of fees the clients had agreed to pay the bank, and despite written instructions to the bank’s traders that generally reflected that the clients were not to be charged trading commissions. McLellan, Pennings and Boomgaardt took steps to hide the commissions from the clients and others within the bank, including by directing that the commissions not be broken out in post-trade reports.

For example:

• In a telephone call in March 2010, Pennings instructed Boomgaardt not to talk about the plans to charge hidden commissions on one transaction “with anyone … because it’s not going to help our story. Don’t even share it with the rest of the team, to be honest.”
• In June 2010, McLellan and Boomgaardt requested that the bank’s traders provide them with the reported daily high and low prices of securities the bank had traded for the client so that they could determine the amount of the commissions to be applied to each security without attracting the client’s attention.
• In March 2011, McLellan instructed a U.S. fixed income trader to charge a commission of one basis point (0.01 percent) of yield to each trade conducted for another client – notwithstanding that the written trading instructions for the transaction said to charge zero commissions – and subsequently instructed the trader to delete any reference to the commissions from the trading results he sent to the transition manager assigned to the project.

When one of the affected clients inquired in June 2011 about whether it had, in fact, been charged commissions in breach of its agreement with the bank, Pennings initially denied that any commissions had been charged.

Later, at McLellan’s direction, Pennings acknowledged only that “inadvertent commissions” had been applied to securities traded in the United States, but did not disclose that they had, in fact, been intentionally charged in both the United States and in Europe. McLellan and Pennings sought to mislead the bank’s compliance staff into believing that the commissions had been charged in error and that the amount of the overcharges was limited to the commissions applied on U.S. securities.