Top fraud QC slams Lloyds over HBOS Reading compensation scheme

One of the UK’s leading legal experts in financial crime has called for Lloyds Banking Group (LBG) to “revisit the serious shortcomings” of the compensation scheme set up in April 2017 to provide to “provide fair, swift and appropriate compensation for the victims of the HBOS Reading fraud.”

An in depth review by Jonathan Laidlaw QC, who has represented The Bank of England, the Football Association, Grenfell victims and directors of public companies facing Serious Fraud Office (SFO), Financial Conduct Authority (FCA) and US Department of Justice (DoJ) investigations, found that the review, led by LBG appointee Professor Griggs, is “procedurally defective and “unfair” and its methodology and guiding principles are “flawed and appear partial to LBG’s interests”.

Mr Laidlaw QC also found that executive directors of LBG may have misled members of their own board, and their conduct “clearly discloses a lack of integrity required by those who are part of the [Senior Managers and Certification Regime] SCMCR”. This is the FCA’s regulatory regime that holds senior managers, including LBG chief executive Antonio Horta-Osorio, to account for the actions of the bank.

These damning conclusions come in a 28-page advice published by SME Alliance, which supports business people in their disputes with banks, ahead of the parliamentary debate tomorrow on the Griggs process, called by Kevin Hollinrake MP, chair of the All-Party Parliamentary Group on Fair Business Banking.

SME Alliance has also filed a formal complaint to the FCA under the Senior Managers and Certification Regime about the conduct of executive directors at LBG, in which it alleges that “Antonio Horta-Osório has been aware of the evidence of serious criminal conduct originating at HBOS Reading at least since 19th April 2011.”

In his advice, Mr Laidlaw QC, reviewed LBG’s statements regarding the Project Lord Turnbull report written by senior LBG risk expert Sally Masterton. LBG initially denied that this was an official report, including in a letter sent in 2014 to the Crown Prosecution Service by its lawyers Herbert Smith Freehills, but last month admitted it was written following “a request from the Group”.

Mr Laidlaw QC questioned how Ms Masterton and Professor Griggs, while having “on the face of it the same material” came to conclusions which are “inconsistent”. Noting that “there is no good reason to doubt [Ms Masterson’s] findings”, he raised questions about the completeness of the documentation provided by LBG to Professor Griggs and his advisors.

In addition, LBG’s failure to inform victims of the conclusions of the Lord Turnbull report is “unexplained and highly unsatisfactory” and led to victims being “kept in the dark” so that they “made business and personal decisions on an uniformed basis”.

In February 2017 six people were jailed for a total of 47 years and nine months for a fraud both HBOS, and subsequently LBG, insisted for many years did not happen, despite commissioning many internal reports into the fraud from 2007. In April 2017, LBG set up a process which Mr Horta-Osorio said would provide “provide fair, swift and appropriate compensation for the victims of the HBOS Reading fraud.”

However, more than 20 months later, many still are fighting for fair payments. SME Alliance has found that:

• Seriously ill HBOS Reading victims are being pressurised to settle by LBG and the Griggs team. One victim died of cancer while still in dispute with the bank;
• Victims are being given 28 days to decide on offers without being given the information being used by the Griggs team to determine the level of payments;
• Victims who have settled with LBG are being forced to sign onerous Non-Disclosure Agreements (NDAs) regarding the compensation process;
• Many victims are being told that they are not eligible to enter the Griggs review, allowing LBG to put out misleading information about the level of settlements achieved;
• Some victims are being forced to turn to other victims who have received settlements to support them through the onerous and extended process with LBG. The level of assistance is now running into seven figures.

Mr Laidlaw QC found a number of serious deficiencies in the Griggs process. These included:

• As LBG, which is in effect a party to the litigation, appointed Professor Griggs, it has a “very strong interest” in the outcome, so the review cannot be independent;
• There is an issue to do with lack of disclosure of the “unnamed and unidentified accounting, insolvency and legal professionals” assisting the Griggs review;
• The review was set up without reference to the views of HBOS Reading victims;
• Failure to fund the cost of hiring experts to assist victims is “clearly unfair”;
• The lack of an “identifiable procedure for appealing the decisions” made by Griggs was “both unusual and unfair”;
• The Griggs process was “not compliant with various fair process principles” used by other similar tribunals.

In conclusion Mr Laidlaw QC found that “the Griggs Review currently operating to redress the wrongs suffered by customers of [HBOS Reading] is procedurally defective” and that “to genuinely right the wrongs of the past, LBG should revisit the serious shortcomings of the Griggs Review and the FCA should commence its investigations and disciplinary process without further delay.”

Nick Gould, chair of SME Alliance said: “Lloyds has failed to honour the promises of its CEO to deliver ‘fair, swift and appropriate’ redress for victims who have been suffering for more than a decade. The Griggs Review is a near perfect example of the bank being judge and jury of its own misdeeds. There is no transparency, no logical methodology and Lloyds’ executives appear to have misled victims, misled regulators and misled their own board causing untold additional pain and stress. It is time for Mr Horta-Osorio to stop the spin and put right the wrongs of this flawed process.”