Two Former Senior Executives of Global Financial Services Company Charged in Scheme to Defraud Clients through Secret Trading Commissions on Billions of Dollars in Securities Trades
Two former high-ranking executives of a Boston-based financial services company that is one of the world’s largest asset managers and custody banks were charged in an indictment that was unsealed today with a scheme to defraud at least six of the bank’s clients through secret commissions applied to billions of dollars of securities trades.
Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Carmen M. Ortiz of the District of Massachusetts and Special Agent in Charge Harold H. Shaw of the FBI’s Boston Division made the announcement.
Ross McLellan, 44, of Hingham, Massachusetts, and Edward Pennings, 45, were charged in a five-count indictment with conspiring to commit securities fraud and wire fraud, as well as two counts each of securities fraud and wire fraud. McLellan, a former executive vice president of the bank who served as president of its U.S. broker-dealer unit, was arrested this morning in Hingham and will appear in U.S. District Court in Boston later today.
“The defendants are charged with reaping millions of dollars of illicit profits by abusing their clients’ trust and secretly setting their own inflated compensation,” said Assistant Attorney General Caldwell. “The charges announced today reflect our continued commitment to hold individuals accountable for toying with the integrity of our financial system.”
“The secret conversations and backroom plotting laid bare in today’s charges paint a vivid picture of a brazen fraud,” said U.S. Attorney Ortiz. “The defendants never thought anyone would hear those conversations – conversations in which they plotted to overcharge their clients by millions of dollars, and to hide their tracks. With each trade, they chipped away at the savings of thousands of retirees whose pensions they were charged with safeguarding. Bankers who abuse their clients’ trust in this way must be held accountable. And we will work hard to ensure that they are.”
“As alleged, Ross McLellan and Edward Pennings cheated and lied to investors so that the bank could line its pockets,” said Special Agent in Charge Shaw. “Actions like theirs undermine investor confidence. This case demonstrates the FBI's commitment to unraveling elaborate and complex schemes, motivated by sheer greed, that ultimately undermine our financial markets.”
The indictment alleges that, between February 2010 and September 2011, McLellan and Pennings, together with others, 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, the indictment alleges. McLellan and Pennings then allegedly took steps to hide the commissions from the clients and others within the bank, including compliance staff.
The government’s ongoing investigation is being conducted by the FBI’s Boston Division. The case is being prosecuted by Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorney and Deputy Chief of Economic Crimes Stephen E. Frank of the District of Massachusetts. The Fraud Section and the U.S. Attorney’s Office of the District of Massachusetts have also received valuable assistance from the U.S. Securities and Exchange Commission as well as from authorities in the United Kingdom, including the City of London Police. The Criminal Division’s Office of International Affairs also provided assistance.