Lloyd's set up 'fraud fund' following convictions

Lloyds Banking Group have established a multi million compensation fund for its Reading customers who became victims of an elaborate fraud conducted by former HBOS staff.

It is understood the amount set aside runs into the hundreds of millions. Industry insiders say the scandal has already cost the bank £1.2billion as it attempts to extricate itself from the deception.

The Financial Conduct Authority are also set to resume their investigation into what the bank knew of the fraud and when. The FCA investigation into the Impaired Assets Team at HBOS in Reading, was paused awaiting the conclusion of the criminal trial.

Lloyds acquired HBOS in 2008. This week it announced pre-tax profits of £6.2 billion.

On Thursday six people were sentenced to a total of 47 years in jail for bribery and fraud which had operated from the Reading HBOS branch.

It is understood to have cost victims millions of pounds, cost some ownership of their businesses, while others watched as assets were stripped from their business and may have affected 200 SMEs.

The fraud relied on banking staff coercing customers to restructure their business into a new company staffed by co-conspirators.

Those co-conspirators then inflated the value of assets allowing businesses to draw down enhanced loans and funding from HBOS. This finance was then stripped out of the business by the application of huge fees.

The Thames Valley police enquiry into the fraud, codenamed Operation Hornet, was the largest investigation ever undertaken by the force.

Among those sentenced to jail on Thursday were: Lynden Scourfield HBOS Reading branch former senior manager, who received an 11 year sentence. Scourfield plead guilty to defrauding his own bank and their business customers of an estimated £245m.

Southwark Crown Court was told Scourfield benefitted from illicit foreign holidays and cash payments between 2003 and 2007. These were paid for by David and Alison Mills of Quayside Corporate Services.

Scourfield would then persuade the bank’s SME customers to employ the Quayside consultancy firm. The fees gathered in this deception amounted to £28million. Often Mills would acquire ownership of the firms they were hired to help.

For their part in the deception, David Mills received a 15-year jail term and Alison three and a half years.

Co-defendants Michael Bancroft, former HBOS bank manager Mark Dobson and John Cartwright were also sentenced to 10 years, four-and-a-half years and three-and-a-half years in prison respectively.

The gang were all found guilty of fraudulent trading, money laundering and corruption in a loan scandal.

The establishment of a compensation fund is the first step in acknowledging the plight of victims by the bank.

Lloyds said it will provide interim payments to victims of the fraud on a case-by-case basis to help those in financial difficulty.

The bank also confirmed they will appoint an independent lawyer to examine its own internal investigation amid accusations that fraud allegations were initially ignored.