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A former senior managing director of State Street Corp. was sentenced yesterday 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 to six months in prison. Pennings pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud in June 2017.
Co-defendant Ross McLellan, 47, of Hingham, was sentenced in October 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, plead 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.
Pennings, McLellan, and Boomgaardt conspired between February 2010 and September 2011 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.
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. 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.
