Two former State Street executives have been indicted with fraud and will face charges in a Boston court.

Ross McLellan, who left State Street in 2011 and went on to set-up Harbor Analytics, was arrested on Tuesday.

Edward Pennings, who is believed to be living abroad, was also named in a five-count indictment by US Attorney Carmen M. Ortiz of the District of Massachusetts.

It is alleged that between February 2010 and September 2011 both individuals added secret commissions to fixed income and equity trades performed for at least six clients of the bank’s transition management business.

The unit helps institutional clients move their investments between and among asset managers or liquidate large portfolios.

State Street UK’s transitions management business was fined nearly £23m in 2014 by the Financial Conduct Authority (FCA) for a “deliberate strategy” to charge clients substantial mark-ups on certain transitions between 2010-2011.

These mark-ups had not been agreed by the clients and were concealed from them.

State Street claims it has cleaned up its act, refunding the clients involved and dismissing the staff that were responsible.

The latest US charges faced by McLellen, who once held the position of global head of transition management at the bank, and Pennings allege a number of misdemeanors.

For example, in a telephone call in March 2010, it is claimed that Pennings instructed an unidentified co-conspirator in the transition management unit not to talk about the plans to charge hidden commissions on one transaction “with anyone . . . because it’s not going to help our story. Don’t even share it with the rest of the team, to be honest.”

It is also alleged that in June 2010, McLellan requested that the bank’s traders provide them with the reported daily high and low prices of securities the bank had traded for the client.

That meant he could determine the commissions to be applied to each security without attracting the client’s attention by exceeding the bounds of reported prices.

Meanwhile in March 2011, prosecutors claim McLellan instructed a US fixed income trader to charge a one basis point (0.01%) commission to each trade conducted for another client – despite that written trading instructions for the transaction said to charge zero commissions.

He then instructed the trader to delete any reference to the commissions from the trading results he sent to the transition manager assigned to the project.

The ongoing investigation is being conducted by the FBI and involves the US Attorney’s Office, SEC and authorities in the UK including the City of London Police.  

McLellan's attorney, Martin G. Weinberg, issued a statement saying that the evidence will "ultimately and compellingly show that Ross McLellan committed no criminal acts and had no criminal intent.”