A former State Street Corp. executive was found guilty of defrauding sovereign funds and other institutional investors by tacking hidden commissions onto billions of dollars’ worth of trades, dispensing with an oft-used defense that such practices are just business as usual on Wall Street.
Once again, a jury was asked to decide whether a banker committed fraud or just behaved as any car dealer would by cutting a sharp deal. And once again, the banker was found guilty, in a verdict that could have reverberations on Wall Street, where bankers are loath to be compared to car salesmen -- except, it seems, when they’re on trial.
The banker, Ross McLellan, was accused of directing a scheme to lure institutional investors to State Street’s transition-management program, where the bank promised to help the funds liquidate complex investments for a low fee and no hidden costs. State Street then defrauded the clients by secretly applying millions of dollars in commissions to the trades, according to a deferred prosecution agreement between the bank and the Justice Department.
McLellan is scheduled to be sentenced by U.S. District Judge Leo Sorokin on Oct. 10. His lawyer, Martin Weinberg, said he would appeal the verdict.
Two former London-based State Street bankers, who reported to McLellan, previously pleaded guilty in the case, and both testified at a trial this month in Boston on behalf of the government.
In his closing argument on Monday, Weinberg cautioned jurors against criminalizing conduct that he said was worthy of no more than a business dispute.
“Business is not always black and white,” Weinberg said. “Businesses don’t always have a duty to spell things out.”
Hidden Commissions
The government’s case was focused on McLellan and the millions of dollars in hidden commissions that the Boston-based custodial bank admits it tacked on to the clients’ trades. The jurors reached its decision a day after they began deliberating, in a verdict that could be felt throughout the financial sector.
In the 10 years since the financial crisis, the Justice Department has compiled a spotty record in bringing criminal charges against bankers accused of defrauding clients or investors.
Prosecutors in Manhattan succeeded in prosecuting a network of insider trading from 2009 to 2013, only to have some of those convictions overturned on appeal. In Brooklyn, two hedge fund managers at Bear Stearns were acquitted in 2009 of charges that they defrauded investors.