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Jury Hears Closing Arguments in Transition Fraud Trial

26 Jun 2018, 16:12

https://www.institutionalinvestor.com/a ... raud-trial

Ross McLellan, a former State Street executive in its transition management unit, now awaits the jury’s decision on charges of securities and wire fraud.

A Boston jury heard closing arguments today in the trial of Ross McLellan, the former State Street executive accused of numerous charges stemming from what federal prosecutors labelled a “scheme to defraud” transition management clients.

The jury will now decide whether McLellan — once a rising star at the Boston bank before departing in 2011 — is guilty on six counts, including wire fraud, securities fraud, and conspiracy to commit both crimes.

In a methodical closing argument that lasted 55 minutes, government prosecutors alleged that McLellen led a “scheme to separate State Street’s clients from their money.” These clients were said to include the UK’s Royal Mail Pension Plan, Kuwait Investment Authority, AXA Equitable, among others. According to prosecutors, McLellan spun “a web of lies” and led a “criminal partnership” within the bank. Prosecutors said he had the help of Richard Boomgaardt and Edward Pennings, two former European-based State Street employees who reported to McLellan. They are now the government’s star witnesses.

Both men have pleaded guilty on counts relating to the overcharging of institutional transition management clients, and are awaiting sentencing.

In McLellan’s final defense, his attorney Martin Weinberg focused much of his 75-minute response on the integrity of Boomgaardt and Pennings’ testimony. Weinberg labelled the pair “cornerstone and corrupted witnesses” with “expectations of benefits and rewards” for testifying — “a ticket to freedom,” as he called it.

Both men “have a willingness and history of committing perjury,” Weinberg claimed in his closing statements. Pennings, he said, couldn’t recall on the stand if he had “lied about lying.”

Weinberg also asserted that McLellan, far from being the center of a conspiracy, raised concerns with State Street attorneys over the legality of not fully disclosing fees applied to transitions. According to Weinberg, the government failed to “build a bridge” between Pennings, Boomgaardt, and McLellan, instead relying on a “blizzard of paper” to confuse the jury.

The extent to which these three former employees hid their behavior from the bank is a matter now before the jury.

State Street institutional clients came under critique from both sets of attorneys. In its closing arguments, prosecutors labelled the Kuwait Investment Authority as “an easy mark, sloppy with paperwork.” The defense rhetorically asked of the massive sovereign fund: “What did the client think? Do they think that the bank will do a $4 billion transition for free?”

A State Street spokesperson declined to comment on today’s courtroom activity, but referred Institutional Investor to a statement made earlier this month.

“We deeply regret that this occurred, accept responsibility for the actions of our former employees, and since the overcharging was discovered have substantially enhanced our controls,” the statement said, in part. “We are fully cooperating with the United States Attorney’s Office for the District of Massachusetts and the Department of Justice in connection with this matter.”

McLellan’s case has taken nearly seven years to reach this stage.

In the fall of 2011, he and Pennings left the bank after clients raised concerns that they were being charged hidden fees on large portfolio transitions. McLellan then set up an advisory business, Harbor Analytics, which worked with clients to analyze transition management services.

In 2016, officials arrested McLellan at his home in Hingham, Massachusetts.

State Street agreed to pay a $65 million fine to the Department of Justice and Securities and Exchange Commission in 2017.


Jury Hears Closing Arguments in Transition Fraud Trial

27 Jun 2018, 15:10

Ex-State Street Executive Found Guilty of Fraud

https://www.institutionalinvestor.com/a ... y-of-fraud

After less than two days of deliberation, a federal jury in Boston has convicted Ross McLellan, the former State Street executive charged with fraud for double-charging clients.

On Tuesday the jury found McLellan guilty of five of six counts of wire fraud, securities fraud and conspiracy to commit those crimes almost seven years after he, along with other members of the bank’s transition management team, agreed to mislead institutional clients about the services they were paying for.

The news comes after roughly three weeks of trial. Closing arguments were held on Monday in Boston. McLellan’s sentencing has been scheduled by U.S. District Judge Leo Sorokin for October 10.

McLellan, once an executive vice president at State Street, is the latest in a string of former executives held responsible for the fraud. Two of his former employees, Edward Pennings and Richard Boumgaardt, earlier pleaded guilty to conspiring to commit wire fraud and securities fraud.

The group allegedly secretly charged commissions on trades, then did what they could to hide the fact from clients.

Those affected by the scheme include the United Kingdom’s Royal Mail Pension Plan, the Kuwait Investment Authority, and Ireland’s National Pension Reserve Fund.

In 2017, State Street was hit with a $64.6 million fine, which the company paid in full to the Department of Justice and the Securities and Exchange Commission for the scheme. The company has disclosed the issue in public filings since 2012.

McLellan and Pennings left State Street in 2011. McLellan was arrested in 2016 at his Hingham, Massachusetts home.

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