Britain's Lloyds criticized for mistreating victims of major fraud

By Iain Withers and Lawrence White

LONDON (Reuters) – Lloyds Banking Group (L:) has been heavily criticized for mishandling a compensation scheme for victims of one of Britain’s biggest banking scandals in a report published on Tuesday.

The fraud at Halifax Bank of Scotland’s Reading branch led to six people being jailed for a combined 47 years.

The scam involved small business customers being targeted and referred to a consultancy in return for bribes which the judge at the trial said included designer watches, sex with prostitutes and foreign holidays.

The bank’s compensation scheme for victims had ‘serious shortcomings’, retired judge Ross Cranston said in a review into how Lloyds compensated victims.

The bank likely failed to properly compensate some victims for financial losses arising from the fraud’s impact on their business, and showed an ‘unacceptable denial of responsibility’ for victims’ suffering, the review found.

The bank, which has paid more than 100 million pounds ($128.30 million) in compensation over the fraud, said it would offer all victims the option to have their cases independently reviewed.

Politicians and campaigners have criticized Lloyds for its handling of the fraud at HBOS, a business it bought in a state-engineered takeover in 2009.

Cranston was appointed by Lloyds to assess its compensation scheme for victims, after financial services minister John Glen called for an investigation in December last year.

Lloyds Chief Executive António Horta-Osório apologized to victims and said he was committed to implementing the recommendations of the report.

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