(Adds further details from court hearing, background on case, paragraphs 5-6, 9-15)
By Nate Raymond
BOSTON, Oct 16 (Reuters) - A former State Street Corp executive was sentenced on Tuesday to 18 months in prison after being convicted of taking part in a scheme to overcharge customers of the bank by applying secret commissions on billions of dollars' worth of trades.
Ross McLellan, 46, was sentenced by U.S. District Judge Leo Sorokin in Boston after a federal jury in June found the one-time State Street executive vice president guilty of charges including conspiracy, securities fraud and wire fraud.
"The issue here is you can't lie," Sorokin said. "Truth matters. You can't tell people you're going to charge one thing and charge another."
Prosecutors had sought five years in prison, saying McLellan oversaw a scheme that defrauded institutional clients including Irish, British and Dutch pension funds and the Kuwait Investment Authority out of millions of dollars.
McLellan's lawyers sought a one-year prison sentence. In court, McLellan asked Sorokin for mercy, saying the case had hurt his family and ended his career.
"It pains me to be here," he said. "It is obviously an extremely difficult time for my family."
The case 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 six customers mark-ups on certain transactions.
In 2017, Boston-based State Street agreed to pay $64.6 million to resolve related U.S. criminal and civil investigations and entered a deferred prosecution agreement.
Prosecutors said that from 2010 to 2011, McLellan with others conspired to add secret commissions to trades made for six customers using the bank's "transition management" business.
The service helps large institutional clients like pension funds move investments between and among asset managers or liquidate large investment portfolios. The goal is minimizing costs of transitioning the investments.
Two former State Street executives, Edward Pennings and Richard Boomgaardt, pleaded guilty to participating in the scheme and testified against McLellan at his trial.
Boomgaardt was sentenced to probation in July. Pennings has yet to be sentenced.
Prosecutors also claimed McLellan defrauded a unit of insurance company AXA SA by applying hidden fees to trades conducted on its behalf. Jurors acquitted McLellan on that charge.
Another ex-State Street employee, Kevin Walker, was also charged over the AXA scheme.
Walker entered into a non-prosecution agreement in September and agreed to not work with any broker for five years. (Reporting by Nate Raymond in Boston; Editing by David Gregorio)