(Adds further details on court case)
By Nate Raymond
BOSTON, May 4 (Reuters) - A former State Street Corp employee in Massachusetts was arrested on Friday and charged with participating in a scheme to defraud an insurance company by applying hidden fees to fixed income trades conducted for funds advised by the insurer.
Kevin Walker, an ex-vice president at State Street, was charged in a criminal complaint filed in federal court in Boston with conspiring to commit wire fraud as part of a scheme involving a former executive already under indictment.
That person is Ross McLellan, a former executive vice president at the Boston-based bank accused of defrauding clients by charging them secret commissions on billions of dollars of trades.
Prosecutors in February unveiled a revised indictment that added a new allegation that McLellan with others sought to defraud a New York-based insurance company, the same one now at issue in Walker’s case.
McLellan, who is scheduled to face trial in June, has pleaded not guilty. A lawyer for Walker, 43, did not immediately respond to a request for comment.
The case brought to four the number of former State Street employees who have since 2016 been accused by federal prosecutors in Boston of participating in schemes to fleece the bank’s clients.
The cases followed a 2014 settlement between State Street and the UK Financial Conduct Authority in which the bank paid a fine of 22.9 million pounds, or $38 million at the time, for charging the six clients mark-ups on certain transactions.
State Street in January 2017 agreed to pay $64.6 million to resolve related U.S. criminal and civil investigations.
Prosecutors accused McLellan and two other executives, Richard Boomgaardt and Edward Pennings, of conspiring to add secret commissions for trades performed for six clients of the bank’s “transition management” business in 2010 and 2011.
That unit helps institutional clients move their investments between asset managers or liquidate investment portfolios, prosecutors said.
Walker during much of his time at State Street from 2004 to 2015 was likewise assigned to that unit.
Friday’s complaint said that in 2011 Walker participated in a scheme with McLellan and another unnamed State Street employee to defraud the insurance company through inflated trading commissions.
The scheme caused the insurance company and the funds it advised to be secretly overcharged by more than $800,000, the complaint said.
Boomgaardt and Pennings pleaded guilty last year to conspiring to commit wire fraud and securities fraud. State Street said it is cooperating with authorities.
The case is U.S. v. Walker, U.S. District Court, District of Massachusetts, No. 18-mj-07160. (Reporting by Nate Raymond in Boston; Editing by Chizu Nomiyama and Grant McCool)