Ex-HBOS Bankers Accused of Getting Travel, Escorts in Fraudby
Defendants mismanaged troubled businesses for their own gain
Participants used cash and high-class escorts as rewards
Ex-HBOS Plc bankers accepted expensive gifts, luxurious foreign travel and high-class escorts to establish relationships that allowed co-conspirators to take control of troubled businesses in a fraud that lost the U.K. bank 245 million pounds ($317 million), prosecutors said.
David Mills, a turnaround consultant, is on trial in London, accused of establishing a “corrupt relationship” with Lyndon Scourfield, the lead director of HBOS’s impaired assets division. They used Mills’s firm between 2003 and 2007 to take over ailing businesses, increasing the companies’ debts to unsustainable levels and commanding huge fees, prosecution lawyer Brian O’Neill said.
"Scourfield was the goose who was laying the golden eggs; David Mills just had to keep feeding him. And feed him he did," O’Neill said Monday at the start of a trial that could last six months. All six defendants deny the charges.
The rewards provided by Mills to Scourfield “took the form of money transfers, cash, expensive gifts, use of an American Express card for personal spending, unauthorized and inappropriately lavish hospitality, luxurious foreign travel and sexual encounters with high-class escorts,” he said.
Mills is one of six people, including his wife, a former HBOS banker and two businessmen, on trial in the case. HBOS was subject of one of the most controversial episodes of Britain’s financial crisis that led to a state-brokered takeover from Lloyds Banking Group Plc in 2009 and a 20.3 billion-pound taxpayer bailout.
Scourfield, who isn’t on trial, would tell his troubled customers that the bank would only continue to support their companies if they hired Mills, who then added himself or an associate as director. The debt at the ailing companies would skyrocket, with Mills taking large payments and sharing them with Scourfield using gifts.
At least 28 million pounds passed through accounts and businesses linked to him and his wife as a result of the fraud, O’Neill said.
David Mills is charged with six allegations of conspiracy to corrupt, fraudulent trading and conspiracy to conceal criminal property while his wife, Alison, faces two counts. Michael Bancroft and John Cartwright, both businessmen used by Mills’s turnaround consultancy, are accused of conspiracy to corrupt, fraudulent trading and conspiracy to conceal criminal property. Scourfield’s colleague Mark Dobson and accountant Jonathan Cohen face the same charges.
Bancroft was paid around 1 million pounds in traceable payments from Mills’ company, according to the prosecution.
The relationship between Scourfield and Mills was key to the fraud, prosecutors said using e-mails to show how much the men relied on each other. In a 2006 message shown to the jury, Scourfield told Mills "I’ll always stick by you."
Several months later, Scourfield told Mills “I have been confirmed as grand wizard,” and Mills responded “Great. Marry me!” Scourfield’s e-mail reply said “I thought we were already."
A pattern emerged of "already vulnerable businesses being further run down by incompetency or as a deliberate policy," and increasing levels of bank funding "improperly diverted between companies," O’Neill said.
"The case is just as much about what happened to the businesses under the mismanagement of Mills as it is about the corrupt relationships which lay behind the fraudulent trading," O’Neill.
According to prosecutors, one such company was Clode, a finance business that provided interest-free credit to consumers. It banked with HBOS and by 2001 was transferred to the impaired assets division. Scourfield told the directors of Clode that the bank would continue to fund it if its business didn’t deteriorate any further and suggested they hire Mills as a non-executive director.
By the time Scourfield left HBOS in 2007 Clode owed the bank about 20.5 million pounds, an increase on the 2.9 million pound overdraft facility it had four years earlier.