Banking’s Abu Ghraib
November 6th, 2009 (first published as “Re-examining HBOS” on Sept 4th, 2009)
Bank of Scotland Corporate, a division of Lloyds Banking Group, has a dirty little secret. Its branch in Queens Road, Reading (Beauclerc House, pictured above) was for several years SME banking’s answer to Abu Ghraib, the Iraqi prison where US military personnel tortured and abused their inmates. Ian Fraser investigates
Lynden Scourfield, Bank of Scotland Corporate’s director of high risk for England, had a curious habit. He appears to have derived pleasure from “torturing” and abusing his own business customers. It was not as physical as the water-boarding and other abuses prevalent at Abu Ghraib; but it has left deep psychological and financial scars on businesspeople across England.
Before inflicting any pain, Scourfield first insisted on installing helpers from his favoured “turnaround consultancy”, London-based Quayside Corporate Services. Quayside had no history in turnaround, and was not a member of any recognised professional institute and had only been set up in 2002, apparently by the bank. The fact that several Quayside consultants had a history of embezzlement and of misappropriating company funds didn’t seem to matter either to the Edinburgh-based bank or to Scourfield.
Customer firms, apparently cherry-picked from across HBOS’s Southern English network, many of which were trading successfully, were herded up and told their accounts were being transferred to Scourfield’s tutelage. None had any idea what lay in store for them.
First, directors were told their companies would be shut down unless they agreed to allow Quayside executives onto their boards (or at least granted Quayside consultants full fiduciary powers). Resistance was futile; the bank told them existing facilities would be removed unless they complied. As soon as Quayside’s embezzlers were in place, the bank turned on the monetary taps, lending to the customer firms as if there was no tomorrow — irrespective of the companies’ ability to repay.
BoS customer firms effected by the scandal insist they saw little or no benefit from Scourfield’s largesse. The additional borrowings and any profits were for the most part “syphoned out” by Quayside – either through extortionate “fees” or other disbursements which were removed from their accounts by the bank without authorization from the companies’ genuine directors.
Quayside personnel, including its founder and managing director David Mills and “textiles consultant” Michael Bancroft, used the money to fund lavish lifestyles and to finance property-buying sprees around the world. (Note: Mills, who lives near Moreton-in-March in Gloucestershire, is no relation of the jailed lawyer husband of UK cabinet minister Tessa Jowell, who was found guilty of taking bribes from the Italian prime minister Silvio Berlusconi.)
As Quayside syphoned out cash, prioritizing payments to itself over payments to critical suppliers, the companies concerned were fatally weakened. Meanwhile Scourfield — who is alleged to have been receiving generous “inducements” from Quayside or Quayside-controlled companies — turned a blind eye. Lare portions of the equity in the firms concerned were transferred to the ownership of The Sandstone Organisation, an off-balance-sheet vehicle of the bank’s, which was controlled by Mills.
Some time between October 2006 and February 2007, HBOS realised things were getting out of hand. In its wisdom, the bank decided the best way to put a lid on the scandal (which inside sources have suggested grew out of high-level policy decisions about restructuring and collateralizing the bank’s SME loan book in 2002, but others have described as “the biggest bank heist in history”) was to “hive down” Scourfield’s £1bn loan book.
This basically involved closing down some 50 legitimate businesses. HBOS’s Tom Angus, Andrew Scott and Fraser Kelly pulled the rug on some 50 of the bank’s own corporate clients, many of which had been trading successfully prior to Quayside’s involvement. Apparently, the bank saw this as the best way of covering its tracks.
The administrations, handled by PwC, KPMG, Menzies Corporate Restructuring (MCR), Hurst Morrison Thomson and Vantis, appear to have been expressly designed to enable directors and associates of Quayside Corporate Services (since subsumed into a new company, Core Enterprise Management), including the notorious Mills, to seize the assets of the victimized firms. Perhaps the ethical antenna at these professional services firms were dulled by the prospect of juicy fees?
Even if legitimate bidders, including the companies’ rightful owners, made significantly higher offers for the assets than Mills and his band of brothers, these were spurned by the administrators and the bank. Unsecured creditors — including suppliers, staff and the HMRC — were left owing tens of millions.
Many of the directors of firms who saw their life’s work snuffed out and snaffled in this way complained to HBOS’s board, but the bank persisted with the li(n)e that it had done nothing wrong. Here’s a quote from the bank’s official spokesman Shane O’Riordain on the episode:-
“We strongly believe that we have acted throughout in a fair and responsible way. Bank of Scotland deals in a sensitive and fair way with all of its corporate banking customers, including those experiencing difficulties. We stand by our customers and support them closely in managing their financial difficulties.”
However it is understood that, the bank viewed the destruction of customer firms as “collateral damage” and of no real import.
Companies abused in this way included the aviation group Corporate Jet Services (owners of Club 328 and Euromanx), textiles business Magenta Studios (formerly the tie-makers Frank Theak & Roskilly and which included Multi-Sourcing Group and surfwear brand Kangaroo Poo), restaurant and nightclubs group Mezzanine (owner of Smollensky’s and Attica), top-shelf publisher Remnant Media, golfing equipment company Seoul Nassau, fishing-tackle company Sharpe’s Holdings, professional hairdryers company Fransen and, last but not least, eco-nappy company Cotton Bottoms.
A company subjected similar treatment was the nightclub operator Opera House Bournemouth, owned by Ultimate Pleasure. In this case, David Mills’ protege Marcello Alessi, with assistance from Menzies Corporate Restructuring (MCR) and with the apparent blessing Scourfield’s Bank of Scotland colleague Emma Marriott, expropriated the assets of the company’s owner and sole director Clive Collins using the shell companies Oakenfold and Tomak.
In this and many other instances, there is evidence of fraud.
Just before victimised businesses were pushed into bankruptcy, Quayside consultants personally stripped out some their most valuable assets and transferred the ownership of these into a web of specially-created off-the-shelf companies mostly with links to The Sandstone Organisation. They also syphoned out hundreds of thousands in cash.
And hours before the administrations occurred, Quayside personnel sought to cover their tracks by destroying corporate financial records — by scrubbing computer hard drives and sometimes by burning documents. This alone is a serious criminal offense.
Experts believe the scam was originally dreamt up by BoS Corporate’s high command in order to grow the size of their already questionable loan book. It seems BoS Corporate executives including the chief executive Peter Cummings and managing directors Hugh Macmillan and Paul Burnett stood to benefit, since their personal bonuses were linked to loan volumes (irrespective of loan quality) and limiting bad debt write-downs.
Bizarrely, some of the UK’s more prominent business people, including Robin Southwell, chief executive of defense and aeronautics group EADS UK, saw fit to partake in the scam.
According to Companies House records, Southwell was, from November 2002, a director of Corporate Jet Services, which went bust owing BoS Corporate £113m in September 2007. Southwell was also a director of Quest Aviation Services, a specially-created vehicle that picked up CJS’s assets for an initial consideration £7 in an administrative receivership in September 2007.
Southwell seems to be close to Mills. He was a director of Quayside Corporate Services from February 2008, after Mills bought it out of boutique investment bank Parkmead, and has been the chairman of Mills’s Core Enterprise Management since May 2008.
An updated version of my blog post on the alleged fraud, ‘Examining HBOS‘ , first published on June 9th 2009, explores this skullduggery and apparent theft of customer assets in further detail. Even though BBC Radio 4’s ‘File on 4′ explored aspects of the scandal in May 2009, the mainstream media in the UK has for the most part shied away from properly reporting it.
One of the most shocking aspects of the BoS Reading affair is that people at the highest levels in HBOS must have known it was going on, but chose to do nothing about (they may even have encouraged it).
Other senior UK bankers tell me it would have been impossible for Scourfield to have lent in £1bn to Quayside-controlled businesses and to have apparently sanctioned the money’s disappearance without HBOS directors including Lord Stevenson of Coddenham, Andy Hornby, Sir James Crosby, Mike Ellis and Peter Cummings being 100% aware.
The head of distressed assets at another bank told me that, at his institution, the main board directors would have been seeing “red warning lights flashing on their computer screens”.
There’s another big difference between the BoS Reading scandal and Abu Ghraib (other than the severity and nature of the crimes committed). Those who were ultimately responsible for the US torture camp — the Pentagon and US government — have accepted accountability, and the individuals responsible received jail terms.
But we have heard no such mea culpas or prosecutions of those who one might have thought were accountable and/or responsible for the BoS Reading situation — including the former board of HBOS and the current directors of Lloyds Banking Group, led by Sir Win Bischoff, or the FSA one of whose roles is supposed to be consumer protection and ensuring UK banks don’t run amok.
Instead all we’ve had repeated denials of wrongdoing from the bank, a public refusal to confirm or deny whether an investigation is underway from the FSA (although it has now confirmed an investigation is underway) and bizarre diversionary tactics from H.M. Treasury.
One might have thought the Treasury Select Committee would take an interest in this scandal, given that part of its remit is to oversee the FSA. But it too is in denial. It’s chairman John McFall claims the committee “cannot investigate individual cases.”
McFall seems oblivious to the fact that this is not an “individual case”. Fifty companies across the UK were asset-stripped and destroyed during the BoS Reading fraud, and many of their former owners are now destitute.
To add insult to injury, the bank is still seeking to repossess the homes of some of the people who were impoverished by the scandal. In the case of one couple, Paul and Nikki Turner of Cambridge-based music publishers Zenith, the bank has tried to do this, unsuccessfully, in some 18 separate court hearings.
When directors of one affected firm made a formal complaint to HBOS’s entire board in August 2007, they didn’t even get a response. Instead they received a letter from the law firm Denton Wilde Sapte, suggesting they should take their “allegations” to the police or the local fraud squad. When the directors did this, the fraud squad told them it would only investigate the matter if HBOS sought an investigation itself. The bank declined to do so.
After acquiring HBOS, Lloyds Banking Group’s chief executive Eric Daniels had a fantastic opportunity to draw a line under the scandal and lance this particular boil. He could have admitted wrongdoing, declared such behaviour would no longer be tolerated, compensated the victims and displayed at least a hint of moral backbone. But Daniels did nothing of the sort. Already in a deep hole, he chose to keep on digging.
- To listen to a BBC Radio 4 ‘File on 4′ documentary broadcast on 26th May 2009 which covers aspects of the fraud, click here
- To read ‘Examining HBOS’ click here
- To read ‘HBOS: When did the rot set in? And were investors asleep at the wheel?’ click here
- This blog post was originally titled “Re-examining HBOS”, but was renamed on November 5th, 2009.
September 4th, 2009 at 9:48 am
Thanks, Ian for staying with this scandal when others have put it on the back burner.
My personal experience of the actions supposedly being taken by the FSA/SFO is somewhat worrying!
Although James Paice MP, supported by Eric Pickles, Vince Cable and others, secured the debate in Westminster Hall the promise of FSA/SFO action is very much in question! I emailed a submission to those agencies some weeks ago — and other than receiving an immediate acknowledgement, have heard nothing else! There have been no requests for further evidence, of which they know we have much.
Your readers might be interested in seeing just a little of this evidence, which confirms that Bank of Scotland was engaged in similar activity dating back to 1989/1990. This was in cahoots with BoS auditors Ernst & Young who also audited Nursing & Care Associates [so similar to the Scourfield links!]. This is currently being updated at: http://www.cbr.me/index.php?page=The-Baker-s-Dozen.
What we know is that from about 1989/1990 BoS could see nothing wrong with having multi-layered conflicts of interest with its auditors and consultant/management company [this was certainly in breach of its banking licence on Isle of Man – and possibly also of its Bank of England licence].
BoS advised my wife to use N&C, run by Peter Stanniland -– when the bank knew or should have known that N&C was trading while insolvent at the time. Who better to tell them than BoS/N&C auditors, E&Y? But E&Y wouldn’t tell BoS, or if they did BoS ignored them, as subsequently did the Royal Courts of Justice!!?
N&C clung on despite all directors, except Stanniland, having resigned. It finally ceased trading in October 1992 but it was replaced by another Stanniland company, Petilda Ltd!! What became a fraudulent court appointed receivership [perhaps the other dozen were too?] lasted for some 13 years until there was nothing of the original £7m equity left!
Should any of your readers know of the other dozen companies similarly ‘eaten alive’ by this grouping, then they are invited to contact us via http://www.CBR.me to discuss a possible class action against the parties named here.
Our immense sadness is that, although the files had the personal attention of Alistair Darling and Jack Straw, to name but two -– nothing has actually been done! Had proper action been taken against BoS in the 1990s then the HBoS Reading casualties would not have been created, or should not have been!!
Thanks again,
Alan Edwards
[also: cbrhq@hotmail.com].
September 6th, 2009 at 12:41 am
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September 10th, 2009 at 1:56 am
Great piece, Ian. Thank you for your valuable and articulate expression of what is really going on within our financial markets — I wish there were more people like you, more journalists with vision and their ‘eyes on the ball’. You are a shining light and example of what the rest of the media could be, if only they weren’t ‘got at’ by corrupt politicians and banksters.
Banking has become a black hole of corruption, particularly since derivatives trading was legalised again in 1999 — what a mess this deception that has created for innocent people. Bankers have been engaging in the worst possible type of financial mugging, as you and millions like you and I have seen.
But the government’s eyes are “wide shut” to it all, and they’re too afraid to confront the stark reality that many of us are having to contend with. Why has James Crosby’s apparent involvement with the Vavasseur Fraud escaped justice – to the detriment and cost of hundreds of us, scores of who have lost their homes?
At last, I feel the energies are finally starting to shift, and it won’t be long before the balance is tipped and the positions of unprincipled plutocrats are reversed.
September 10th, 2009 at 2:10 am
I’d like to add that it was Halifax Bank of Scotland’s close relationship the FSA that enabled Vavasseur victims’ moneys to be stolen — in broad daylight — by sleight of hand and abuse of power dressed up as alleged “regulation”. The people responsible should be made to pay personally and jailed.
The FSA effectively seized $250,000 belonging to Vavasseur creditors, which was money that was held in ‘trust’ by the banking system through various offshore accounts that HBOS had been conveniently accessing via hedge funds. They used this money to play their games with (to coin Shin Gangar’s phraseology) or in banking terms to issue derivatives and corporate bonds … hence their voracious appetite for the loans that they issued against people’s family homes, in the knowledge these loans would cause their “clients” to lose their houses.
It seems that Bank of Scotland conspired to defraud hundreds of house-owners of their homes within the carefully-crafted deceptions of the Vavasseur fraud. Sir James Crosby even got St James Place employees to set up private IBC’s posing as “mortgage advisory companies”, in order to harvest people’s assets.
Yet the monies “loaned” were fiat money, backed merely by faith, tying the subjects to the Bank of Scotland with their fate sealed…
BRING BACK THE MAGNA CARTA! No man can be deprived of his home, under the Rules of the Magna Carta, let’s get back to basics shall we?
It’s high time that we named and shamed the banks that were the most responsible for inflating the torrid credit bubble which is now swallowing up the assets of the common man.
September 14th, 2009 at 10:46 am
One of the most shocking of aspects of this scandal (and it’s one the interested regulatory authorities ought to consider) is the fact there was no contractual or formal relationship between Bank of Scotland and Quayside Corporate Services. And yet many businesses were told (by Lynden Scourfield) that it was a bank requirement that Quayside was employed as consultants to their businesses, or that Quayside personnel became directors of their businesses with full fiduciary control.
Nor were there any contracts between Quayside and the bank’s clients. Yet the bank was writing to its customers categorically stating that Quayside was working for BoS (implying the existence of a contractual relationship), which meant I could not even claim VAT back on invoices that were addressed to Scourfield at the bank for fees, relating to and paid for by my company (the sums were deducted from my account by Scourfield with no mandate from any of directors of the company).
I have seen a letter from Simon Glyn (administrator to Remnant Media and SMD but who was also the person seconded by Vantis to work as Lynden Scourfield’s assistant) insisting, on the bank’s behalf, that a company director must hand full fiduciary control of her company to Michael Bancroft – a man who in 1991 misappropriated huge sums from the listed textiles company Ritz Design Group PLC, where he was chairman and chief executive, and was obliged to pay back £1.465m.
Again, there was no contract between the company and Quayside – or the Bank and Quayside.
Does this mean that a bank can stick any old Joe Bloggs, or Jesse James for that matter, into it’s clients’ businesses just because they profess to be consultants? Apparently so.
I’ve asked people at the FSA, the BBA and The Banking Code Of Conduct Board if this is the case and none of them have been able to contradict this sorry fact. As with most things in banking, the banks have been able to write their own rule book.
What was going on at BoS Reading appears to have been along the lines of: “I’ve got this mate and he’s set up a consultancy business and he’s got these other mates, some of whom are a bit dodgy, who are working for him. They have no reputation or skills in management consultancy, they don’t belong to any recognised trade organisation or professional body and, as a matter of fact, a couple of them have been guilty of defalcation (embezzlement to us lesser non-PC mortals).
“But, as your bank manager, I want you to pay my mates bucket loads of dosh and, if you say no, I’ll pull the plug on your business. But if you say yes, your business gets a bit more money or even millions (until I get caught and my bosses pull the plug on the scam and send you the bill) and I get luxury holidays, kickbacks and the odd gold watch, all paid for by you! Oh and by the way, don’t bother trying to call me about business matters on Friday afternoons. I’ll be round at the consultancy’s den shagging like a good’un with East European prostitutes.”
I’m sorry to put it so flippantly or if I am restating earlier comments on your blog but that is the basis of what happened, and if Guy Ritchie were to write a film script about the financial sector, he couldn’t come up with anything as unbelievable as this.
The only problem with this scenario is that: (a) whatever powers he had, Mr Scourfield could not have operated this scam on his own, that would have meant he had over-ridden all the risk management and credit approval procedures within BoS Corporate, so other, very senior people in the bank, had to be involved (b) BoS got rid of Scourfield in March 2007 and had entered litigation with Quayside/Parkmead by September 2007, which suggests the bank was fully aware of what was going on, while at the same time continuing to deny the facts and persecuting customers who had been scammed by Scourfield and Quayside and (c) the assets of many of BoS clients’ businesses from 2002 onwards, ended up being owned by a shadowy company called the Sandstone Organisation – a company that very possibly will turn out to have been owned by the bank itself until September 2008 when it was apparently handed over to David Mills, the owner of Quayside. So there would appear to have been intent, somewhere along the line, to deliberately steal the assets of the bank’s clients.
All three of those scenarios suggest something much more serious than a dodgy bank manager and his mates making a few million.
It is equally worrying that, as your blog entry suggests, this scam could not have operated successfully without the complicity of auditors, lawyers and administrators. Last week, I saw a truly astounding document that the passport photo’s and even mothers’ details of two administrators attached. Had the person to whom these were sent signed the documents, he would have handed over 40% of his company to the individual administrators for no consideration. That company was not in administration at the time, but was being run by Quayside at the behest of the administrators instructed by HBOS Reading.
Maybe some very clever and highly paid lawyers will be able to interpret the document in a way that does not stink to high heaven.
Perhaps the same lawyers can explain why that company, after it went into administration a year and approx £85,000 in fees to Quayside later, was eventually sold out of administration to a Quayside employee for £100,000 , when there were offers of £1m and £600,000 from other parties on the table? They might also be able to explain why that company’s turnover dropped by almost £1m in the year Quayside was running it. Who knows, HBOS does employ some pretty fantastical lawyers!
Anyway it’s great to see you’re continuing to expose this scandal and it is great to know that the FSA are, finally, beginning to find out the truth about BoS Reading. On the other hand, the thought that BoS might get fined a whopping £2.45m (Barclays fine last week) for their fraudulent activities, is extremely worrying for victims who have collectively lost tens of millions of pounds. That fine represents approximately 1,000 magnums of vintage Dom Perignon.
I bet the banks are really afraid of the FSA now, Hector.
September 14th, 2009 at 10:34 pm
Great analogy Nikki!! Would that the Bank of Scotland Corporate Reading scandal were that simple!
September 25th, 2009 at 6:00 pm
Well, to put it mildly, proof of fraud actually does exist … let’s all watch this space and no doubt as the saying goes … “like rats leaving a sinking ship” is springing to mind … the days are disappearing slowly but certainly very surely … and they thought they were so clever and untouchable; how wrong they were…
October 3rd, 2009 at 8:32 pm
[...] journalists to have taken an interest — or indeed to have been aware of — the appalling Bank of Scotland Corporate Reading / Lynden Scourfied / Quayside Corporate Services scandal, one does wonder why in response to these [...]
November 10th, 2009 at 11:19 am
Hear hear…! Well done , only a matter of time before these cowboys have a huge fall…
November 21st, 2009 at 1:22 am
[...] To get more of an idea of how institutional investors singularly failed to keep rogue bankers in check, read HBOS: When did the rot set in? And were shareholders asleep at the wheel? and / or Banking’s Abu Ghraib. [...]
December 2nd, 2009 at 11:29 am
[...] years of tawdry cover-ups and persecution of the victims, the £500m to £1bn Bank of Scotland Reading fraud is about to be fully [...]
January 9th, 2010 at 7:39 pm
[...] To read Banking’s Abu Ghaib, click here [...]
January 15th, 2010 at 8:02 pm
[...] for an 18th hearing on Monday. This is despite the fact the FSA’s investigation into the scandal remains incomplete. It is sociopathic behaviour must be [...]
February 4th, 2010 at 2:26 pm
[...] To read a detailed expose of how HBOS / Bank of Scotland conspired to destroy at least 32 of its corporate customers in south-east England and then expropriated their assets, read Banking’s Abu Ghraib. [...]
February 5th, 2010 at 7:50 pm
[...] To read a detailed expose of how HBOS / Bank of Scotland conspired to destroy at least 32 of its corporate customers in south-east England and then expropriated their assets, read Banking’s Abu Ghraib. [...]
February 9th, 2010 at 6:17 pm
[...] Supine Authority” some teeth. (To judge by the lackadaisical approach to investigating the BoS Reading scandal evinced by head of supervision Jean Moorhouse, Sants has a long way to go on this [...]
February 23rd, 2010 at 1:28 am
[...] — including the bizarre activities of ex-director of mid-market high-risk at BoS Corporate, Lynden Scourfield — via email and registered letter on September 3-5, [...]
February 26th, 2010 at 11:13 am
[...] is the Bank of Scotland Reading fraud, in which the vast majority of the £925m lent by BoS Corporate to companies advised or controlled [...]
February 27th, 2010 at 11:07 pm
[...] Banking’s Abu Ghraib, by Ian Fraser [...]
March 17th, 2010 at 7:20 pm
[...] whole sordid episode, documented in my Banking’s Abu Ghraib post, is currently being investigated by the Financial Services Authority following a parliamentary [...]
April 24th, 2010 at 1:25 am
[...] Banking Group’s increasingly pathetic attempts to cover these up, see Examining HBOS and Banking’s Abu Ghraib). Instead Brown and his government has openly conspired to hush these things [...]
May 30th, 2010 at 10:47 am
[...] Interregnum / Parkmead / Quayside Corporate Services [...]
July 19th, 2010 at 10:52 pm
[...] also worth noting that, even though it has been informed about a £1bn internal fraud that occurred withing HBOS’s corporate lending department in 2002-07 on at least two separate [...]
July 29th, 2010 at 6:03 pm
[...] 100% in denial about the serial expropriation of customers’ assets by HBOS and HBOS affiliates, something which is currently been investigated by an enforcement team [...]