Former State Street Executive Sentenced for Scheme to Defraud Clients Through Secret Trading Commissions
BOSTON – A former senior managing director of State Street Corporation was sentenced today in federal court 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.
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, was sentenced by U.S. District Court Judge Leo T. Sorokin to six months in prison. In June 2017, Pennings pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud.
In October 2018, co-defendant Ross McLellan, 47, of Hingham, was sentenced to 18 months in prison and two years of supervised release after being convicted by a federal jury of one count of conspiring to commit securities fraud and wire fraud, two counts of securities fraud and two counts of wire fraud. Richard Boomgaardt, 44, of Sevenoaks, England, a former managing director of State Street, who was charged separately for his involvement in the scheme, pleaded guilty in July 2017 to one count of conspiracy to commit securities fraud and wire fraud was sentenced in July 2018 to one year of probation.
Between February 2010 and September 2011, Pennings, McLellan, and Boomgaardt conspired to add secret commissions to fixed income and equity trades performed for 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 that the clients had agreed to pay to the bank, and despite written instructions to the bank’s traders that generally reflected that the clients were not to be charged trading commissions. Pennings, McLellan, 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.
In June 2011, when one of the affected clients inquired 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. Pennings and McLellan 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.
United States Attorney Andrew E. Lelling; Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division; and Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Office, made the announcement today. Valuable assistance was provided by the Securities & Exchange Commission and the Justice Department’s Office of International Affairs. Assistant U.S. Attorney Stephen E. Frank, Chief of Lelling’s Securities and Financial Fraud Unit, and Trial Attorney William Johnston of the Criminal Division’s Fraud Section prosecuted the case.