ON Thursday, two bankers and four consultants were jailed for their part in a £245 million loans scandal which caused the destruction of up to 200 viable small-business customers of the bank HBOS, and is thought to have caused losses of £1 billion at HBOS’s new parent, Lloyds Banking Group. It was the culmination of an investigation in which I’d been involved for almost a decade as a journalist.

Seasoned newspaper writers often say: “Never look below the line; that way madness lies.” They mean you shouldn’t read the comments underneath articles you have written, as they can be a minefield of pedantry, semi-coherent ranting and abuse. So when I saw that there were more than 400 comments under my “Call to sack HBOS directors” article – published in the Sunday Herald at the height of the banking crisis on September 28, 2008, days after HBOS had collapsed and when RBS was on the brink – what did I do?
I ignored colleagues’ advice and delved in. Amid the bluster and outrage that an iconic 300-year-old Scottish institution had been led to destruction by such hopeless directors as Lord Stevenson and Andy Hornby, one short comment stood out. It was from a Cambridge businesswoman called Nikki Turner, and said, “if anyone is interested in finding out more about a £1 billion fraud in a single HBOS branch, please get in touch”.

Two days later, on Tuesday, September 30, I had several long phone calls with Turner, a lyricist and mother of two, and her husband Paul, a rock music entrepreneur who had done the lighting for acts including Bob Marley, Dire Straits, The Jam, Fleetwood Mac, Thin Lizzy and Bruce Springsteen. I learned the couple had launched an independent music label, Zenith Cafe, in 2003. They told me this had been on the cusp of a major breakthrough in 2007, when for no apparent reason HBOS had effectively pulled the rug from under it.
The Turners blamed this on a rogue senior manager at HBOS’s Bank of Scotland Corporate arm named Lynden Scourfield, alleging he had been working in cahoots with a bunch of self-styled “turnaround consultants” dubbed Quayside Corporate Services, which was led by former NatWest manager David Mills.

The seemingly wilful destruction of Zenith sounded bad enough. But what made me realise this story had legs was that the Turners had documentary evidence to back up every claim they made, and had already done a significant amount of research into the activities of Scourfield and Quayside. Critically, they had discovered that it wasn’t just Zenith that had been treated so badly.
They had identified dozens of firms across the UK which had been through the same mill at the hands of Mills and Scourfield, and in many cases the punishment meted out had been far worse than what Zenith had endured. The affected firms came from a range of sectors including aviation, consumer credit, packaging, nightclubs, restaurants, sporting goods, textiles and top-shelf magazines – and included well-known brands like Smollenskys on the Strand, EuroManx airline and magazine Asian Babes.

The modus operandi meant companies would discover that their bank accounts were being transferred without warning to the tutelage of Scourfield’s “high-risk” team based at Beauclerc House, Reading. The next step was that Scourfield would impose Quayside as advisers, shadow directors or directors of their firms, effectively using blackmail to ensure the companies acquiesced (the standard threat was that if they didn’t comply, they would be “shut down”).
Scourfield would then turn on the monetary taps, granting huge and usually unserviceable additional loans to the firms concerned. Quayside personnel – the most unsavoury of whom were Michael Bancroft and John “Tony” Cartwright – then behaved liked trumped-up Mafiosi, treating the companies as their own personal cash machines and syphoning off cash to fund lavish lifestyles and prostitutes as well as large bribes and “inducements” for Scourfield. All the while, they were destabilising the businesses, plundering their assets, and setting them on a course towards insolvency.

In short, Scourfield and co acted like the characters in the classic Mafia movie Goodfellas, where Ray Liotta’s Henry and Paul Sorvino’s Paulie take over a restaurant, then milk it for all its worth before torching it for the insurance money.

For many of the firms’ legitimate owners and managers, it was a Kafkaesque nightmare, especially when complaints to the headquarters of the parent group HBOS – a supposedly reputable bank, founded in 1695 and once advertised as “a friend for life” – fell on deaf ears.

The Turners’ tale might have been dismissed as a sob story, a failed business blaming its woes on a bank, but unlike some other journalists they approached, I was fairly convinced this was not the case. This was something major and abhorrent, which I believed deserved exposure, especially since the bank seemed to be seeking to keep the scandal under wraps. I also felt that since HBOS was about to be acquired by Lloyds, Lloyds shareholders deserved to know of the true toxicity of the bank they were poised to absorb.

The Turners had issued a formal complaint, which detailed the scale and scope of the alleged internal fraud. In August and September 2007, they sent letters by both email and recorded delivery to every member of HBOS board. The bank’s response seemed astonishing. Instead of thanking the Turners for alerting it to wrongdoing and offering to compensate them for the damage done to their music business, it sent a menacing legal letter from solicitors Dentons, then sought to have them evicted from their home in 22 subsequent court hearings. As a financial journalist I was well aware that reckless lending, inadequate controls and delusional thinking had fuelled the UK’s banking crisis. But what I had just learned seemed off the scale.

My next task was to try to get the story into the media. The Sunday Herald gave me the go-ahead to research and write a major investigative piece, alongside experienced investigative journalist Paul Hutcheon. Paul and I made excellent progress over the next few weeks, marshalling evidence of victimised firms from Companies House, interviewing business people who had been affected by the fraud, persuading a whistleblower named Terry Holligan to come to Glasgow to provide an affidavit about brown envelopes of cash plundered from affected firms being used to pay for Scourfield’s prostitutes and much, much more.
I tracked down Mills and asked him to respond to allegations that he had destroyed businesses, seized assets, and gouged millions of pounds of the bank’s cash from firms he was supposed to be caring for. In an interview on November 27, 2008, Mills claimed the “whole principle” of Quayside was “to come in and actually get [the companies] through a difficult period”, adding: “You could speak to many other chairmen and managing directors of business who would tell you they are absolutely delighted with the services Quayside provided because it saw them through a difficult time.”

This turned out to be wide of the mark. During the recent trial, the head of impaired assets at Bank of Scotland Corporate, the arm of the bank for which Scourfield worked before it was merged with Halifax to become HBOS, told the jury that, as far as he knew, Quayside has never restored a single client firm back to health. Two lengthy pieces titled “HBOS faces hard questions over use of troubleshooters who misappropriated company money” and “All they seemed to do for us was to take enormous fees” were published in the Sunday Herald on November 30, 2008.

Among other things we broke the news that two of Quayside’s consultants, Bancroft and Cartwright, had a history of embezzlement, having stolen more than £1.5m from textiles group Ritz Design plc in 1991. However the article was not widely followed up.

In early March 2009, I was invited by the BBC Investigations Unit to help make an investigative documentary on the scandal. One of my tasks was to research the Quayside-controlled textiles group Magenta Studios; another was to research what sort of checks and balances were supposed to exist in Bank of Scotland Corporate. At Magenta, I learned that Quayside’s Bancroft had been helping himself to fees of £15,000 to £20,000 a month even though he was having an entirely negative effect on the business.

The picture emerging about the systems and controls at Bank of Scotland Corporate was shocking. An obsession with growing its market share in the world of business banking had been the key driver of the organisation ever since the Halifax merger of 2001. As a result, systems and controls had atrophied or were readily overridden by any bonus-crazed insider.

Two senior people within Bank of Scotland Corporate tried to put me off the scent with one claiming that Scourfield was “a red herring” in that his £1bn losses played no part in the bank’s collapse.

In a letter to MPs of affected constituents dated February 2009, Lloyds’s Philip Grant claimed there was “a lack of evidence of direct personal benefit on the part of Scourfield from his relationship with Quayside”. The bank had reached this conclusion following “an extensive internal review” after Scourfield quit in March 2007, Grant insisted.

Our findings about loan abuse and human suffering were broadcast in a 40-minute BBC Radio 4 File On 4 documentary on May 26, 2009, which was extensively followed up in other media including on BBC news bulletins.
I had occasional moments of doubt. If Lloyds was denying any wrongdoing, if David Mills was claiming he was a legitimate turnaround specialist who had the best interests of affected firms at heart, and if no UK authority was bothering to investigate this scandal, perhaps my colleagues and I were just delusional. Perhaps the dozen or so cases we had forensically investigated were just aberrations and Mills and his crew really were decent people who simply wanted to restore the firms with which they became involved to health.

Such doubts didn’t last long. In May 2010, I was so frustrated by the bank’s stonewalling that I obtained proxy voting rights from a Lloyds shareholder and questioned the bank’s board, then led by chairman Sir Winfried Bischoff, at the annual general meeting in the Edinburgh International Conference Centre. I read out parts of the Banking Code, which states: “We promise we will treat you fairly … We will lend responsibly … We will deal quickly and sympathetically with things that go wrong.”

“Do you believe,” I asked, “that you have abided by these principles in your handling of the BoS Reading scandal?” No sensible answers were forthcoming.
Scourfield used various methods in his attempt to silence me, issuing a libel writ over something I had written in a blog published in May 2009, just before he was arrested in September 2010. This backfired spectacularly, as it only added to my enthusiasm for getting the story out there, and obviously lapsed once he pleaded guilty last year. Now that he has been jailed for 11 years and three months, I intend to sue him for costs and damages incurred by his failed writ.

After a decade of denial and persecution of the victims, senior Bank of Scotland Corporate and Lloyds bankers finally owned up, under oath, during the recent trial, admitting that they became “suspicious” of Scourfield in January 2006 and that they launched the first of a string of seven internal and external investigations (which were subsequently suppressed) into what he had done in July 2006. The cumulative effect of these reports was that by July 2007, according to Thames Valley Police, the bank should have concluded that fraud had taken place.

Throughout the four years I was investigating this affair, I was so shocked at the level of disinterest among the regulators including the FSA and quango UK Financial Investments, which is supposed to look after the taxpayers’ stakes in bailed out banks, that I began to wonder whether they might be more interested in protecting Lloyds than in getting to the bottom of the scandal or holding those responsible accountable.

It was only after Thames Valley Police became involved under the auspices of Operation Hornet – which the force said was to probe “money-laundering, corruption and large-scale fraud” linked to Bank of Scotland Corporate – and made an initial series of arrests in September 2010, including Scourfield, Mills and Bancroft, that there was any sign the UK authorities had any interest in properly investigating the matter.

Now that, following a four-month criminal trial, the culprits have been jailed for periods of between three-and-a-half years and 15 years, I feel a degree of vindication. Judge Beddoe summed up the feeling of many with his pre-sentencing speech on Friday, when he said: “This case primarily involves an utterly corrupt senior bank manager letting rapacious, greedy people get their hands on a vast amount of HBOS’s money and their tentacles into the businesses of ordinary decent people … and letting them rip apart those businesses, without a thought for the lives and livelihoods of those whom their actions affected, in order to satisfy their voracious desire for money and the trappings and show of wealth.”

Beddoe went on to describe Mills as “the devil” and accused Scourfield of having “sold his soul” to him.

Anthony Stansfeld, Police and Crime Commissioner for Thames Valley, also raised a critical point when he said: “That a fraud of this size could have taken place either displays complicity or incompetence, a lack of corporate governance, complacency, and an absence of proper safeguards.”
So the problems with British banking, sadly, go deep. I suspect the Wild West of “turnaround consultants”, insolvency practitioners and banks’ “business support units” will have to undergo fresh scrutiny and that the legislation underpinning these areas will have to be tightened up.

Since Lloyds seems unlikely to voluntarily compensate owners and managers of the firms that got trashed, or the people whose lives were ruined, it is likely to find itself on the receiving end of a flurry of civil claims.

My hope for the future is that banks and regulators will become quicker to address these sorts of internal scandals – by, among other things, punishing the wrongdoers and compensating the victims – as and when they occur rather than waiting a decade for the most obvious culprits to be prosecuted.

But I have now stopped looking “below the line”.