SEC Accuses Ex-State Street Executive of Fraud Over Hidden Fees

  • McLellan was indicted in related criminal case last month
  • Bank said it cooperated with U.S. authorities in the inquiry

The U.S. Securities and Exchange Commission brought fraud charges against Ross McLellan, a former executive of Boston-based State Street Corp., accusing him of engaging in a scheme to defraud investors.

McLellan and others deliberately charged customers of the bank hidden markups on certain transactions, generating about $20 million in additional revenue for State Street, the SEC said Friday in a news release. When confronted by a customer about the markups, McLellan directed others to describe the extra costs as a “fat-finger error” and as “inadvertent commissions,” according to the agency’s complaint.

McLellan’s lawyer, Martin G. Weinberg, said his client will prevail.

“The evidence will ultimately and compellingly show that Ross McLellan did not violate any securities law,” Weinberg said in an e-mailed statement. “Every major bank charges its clients markups on its bond transactions in order to generate profits. And every dollar that is at issue in today’s complaint was received not by Mr. McLellan, but by the bank for which he worked.”

McLellan and Edward Pennings, another former State Street executive, were indicted by the U.S. Justice Department last month on charges of conspiracy, securities fraud and wire fraud. Both men pleaded not guilty.

At the time of the indictment, State Street said it had cooperated with U.S. authorities for several years and had strengthened its controls and reporting mechanism.

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