Banking update: HBOS- further investigations?

Project Lord Turnbull, a review written by a previous employee of Lloyds Banking Group whilst in employment, alleges serious
misconduct on the part of senior bankers and auditors at both KPMG and PWC regarding the handling and the disclosure of the Reading fraud. Although the report was written in 2013, it has only recently made its way into the public domain through the same whistle-blower that leaked the recent GRG Report.

Allegations made within the Report

• HBOS covered up their employees’ fraudulent activities, in relation to the Reading incident, from as far back as July 2007, however possibly since 2005;
• HBOS should have been a going concern from February 2008 and was effectively insolvent by July 2008;
• Financial Conduct Authority (FCA) were knowingly and recklessly misled by HBOS and Lloyds;
• Lloyds were aware of the issues, and had evidence as to these, since October 2008;
• Lloyds were aware, and had evidence of, the serious financial irregularities at HBOS during the time of the merger;
• The irregularities were reduced on the financial statements so disclosure to shareholders was not required. This is suggested to have been reduced from circa £800million to circa £245million;
• The Report also suggests the extent of the financial implications, as are now well known, of the fraudulent behaviour
  within HBOS;
• The Report also makes a number of references to irregularities within both KPMG and PWC in their capacity as auditors for HBOS and Lloyds.

The implications of this Report are substantial both in terms of an official publication of the Report, the Review Process currently being undertaken for victims, and the involvement of KMPG/ PWC.

Further investigations to be made in relation to HBOS

1. National Crime Agency (“NCA”)- widening the scope

Following on from the original Review into the Impaired Assets Office of HBOS’ Reading branch, the NCA, a government organisation, released a statement on 30 April 2018 [LINK] stating that a pre-investigative evidential review into HBOS’ London and South-East branches will now be undertaken.

Thames Valley Police, the initiators of “Operation Hornet” which successfully convicted six people of fraudulent activity within the HBOS Reading branch in February 2017, requested the pre-emptive review following reports alleging significant fraud in this area. This report has also received support from other organisations including the City of London Police, Serious Fraud Office and the FCA.

The previous Review focussed specifically on the Reading branch however this pre-emptive initial review aims to look into the Impaired Assets Division in further areas whilst also looking at the allegations that fell outside the scope of the original police investigation.

This investigation is set to last six months following which the decision will be made as to whether an entirely new criminal investigation needs to be undertaken.

2. Disclosure of the Report

High Court Judge Dame Linda Dobbs has been invited to conduct of a review regarding the disclosure of, or lack thereof, the
fraudulent happenings within HBOS as they occurred. This review is intended to be published at the end of 2019. Following the involvement of the National Crimes Agency into widening the scope of the criminal review of fraudulent activities within other HBOS branches, the National Crimes Agency will also be tasked with investigating this disclosure issue.

Furthermore, the Treasury are now being pressured to provide information regarding the disclosure of the Report; when they were made aware of it and what discussions were undertaken with regulatory bodies as to the contents.

3. Auditors

It has been suggested that there be an independent investigation into KPMG, and specifically their audit of HBOS, as HBOS was given a clean bill of health less than two months prior to suffering financial difficulties.

What does this mean?

The Report will also no doubt lead to controversy surrounding the Review process currently being undertaken by Lloyds into the HBOS fraud. The Review has been labelled as independent which remains doubtful, especially in light of these new findings. It has been suggested that the Bank should no longer be able to contain and censor its findings, investigations and
review outcomes.

These further findings will only serve to elongate the investigatory process into the HBOS fraudulent activities and further delay closure for the victims.

How can Ellis Jones help you?

If you believe that you have been affected by HBOS Reading, or indeed any other branch, please do not hesitate to contact our HBOS Solicitors. We have substantial experience in dealing with claims in this area and we have recovered in excess of £50 million from UK Banks for our clients. We may also act on a No Win No Fee basis, subject to eligibility and initial assessment of
your claim.

Please contact William Fox Bregman, Partner and Head of Banking and Finance Litigation on 01202 057740 or send an email enquiry to discuss your claim.