BOSTON (Reuters) - A former executive at State Street Corp (STT.N) went on trial on Monday on U.S. charges that he participated in a scheme to defraud the bank’s clients by charging them secret commissions on billions of dollars in trades.
Jury selection wrapped up on Monday in Boston federal court in the case of Ross McLellan, a former executive vice president at the bank accused of committing securities fraud and wire fraud. Lawyers will deliver their opening statements on Tuesday.
McLellan is one four former employees of the Boston-based bank who have since 2016 faced charges by the U.S. Justice Department that they engaged in schemes to overcharge institutional clients, allowing State Street to earn millions of dollars.
Two of those former executives - Edward Pennings and Richard Boomgaardt - pleaded guilty in 2017 and are expected to testify at the trial, according to court papers. Assistant U.S. Attorney Stephen Frank said Boomgaardt would be the first witness.
McLellan, 46, pleaded not guilty and denies wrongdoing.
“What he denies is that any unlawful or improper commissions were charged,” Martin Weinberg, McLellan’s lawyer, said in court prior to jury selection.
The case followed a 2014 settlement between State Street and the UK Financial Conduct Authority in which the bank paid a fine of 22.9 million pounds, or $38 million at the time, for charging six clients mark-ups on certain transactions.
In January 2017, State Street agreed to pay $64.6 million to resolve related U.S. criminal and civil investigations and entered into a deferred prosecution agreement.
According to prosecutors, from 2010 to 2011 McLellan, Pennings, Boomgaardt and others conspired to add the secret commissions for trades made for the six clients, which had been utilizing the bank’s “transition management” business.
The service helps large institutional clients like pension funds move their investments between and among asset managers or liquidate large investment portfolios with the objective of minimizing the costs of transitioning the investments.
The six clients included a Middle Eastern sovereign wealth fund and Irish and British government pension funds, according to court papers.
Prosecutors allege that McLellan also participated in a separate scheme to apply hidden fees to fixed-income trades conducted for funds advised by a New York-based insurer, resulting in about $700,000 in overcharges.
Reporting by Nate Raymond in Boston; Editing by Leslie Adler and Bill Berkrot