Britain's Lloyds to compensate fraud victims with $125 mln scheme

By Andrew MacAskill and Lawrence White

LONDON (Reuters) - Lloyds Banking Group revealed a 100 million pound ($125 million) compensation scheme on Friday for victims of a fraud for which six people were jailed this year, as Britain's financial watchdog reopened a probe into the case.

Britain's biggest mortgage lender has been under pressure to compensate the victims at its HBOS business, who say it reacted too slowly to their complaints, and will hope that this will draw a line under the controversy.

"We would like to express our deep regret and apologies to any customers directly affected by the criminal behaviour of these individuals," Chief Executive António Horta-Osório said.

Lloyds said in a statement it will provide interim payments on a case-by-case basis and appoint an independent lawyer to consider whether it properly investigated at the time.

Nikki and Paul Turner, who brought the scam to the attention of police in 2003, called on Lloyds to be clear on when it would make payments.

"It is a relief to see that Lloyds is finally recognising its obligations to the victims of this scandal," Nikki Turner said in a statement.

"However we need to see a firm timetable from Lloyds on when restitution will be made. The bank has to recognise that victims suffered twice - once from the fraud and then from the cover up," she said.

Lloyds, whose shares had fallen 0.8 percent by 0900 GMT against a 0.3 percent fall in the S&P European banks index, said the compensation was to cover economic losses, distress and inconvenience caused by the fraud.

Many of the businesses involved went into liquidation, resulting in job losses and financial hardship as a result of the scam. Two former bankers at HBOS, which was rescued in a state-engineered takeover by Lloyds in 2008, helped siphon off money from struggling businesses which were HBOS clients.

Britain's Financial Conduct Authority separately said it was resuming its investigation of the case, which had been placed on hold in 2013 pending the outcome of the police's own probe.

Former HBOS bankers Lynden Scourfield and Mark Dobson, businessmen Michael Bancroft, David Mills and his wife Alison Mills and accountant Tony Cartwright were convicted of various crimes after a five-month jury trial in February.

They were found guilty of a scam involving fraudulent loans and sent to prison for a total of 47-and-a-half years, among the toughest sentences handed out for a high-profile, white collar fraud in Britain in recent years.

The corrupt bankers asked struggling business owners to employ a turnaround consultancy as a condition for getting a loan and they were obliged to pay the consultancy high fees for services and, in some cases, hand over ownership.

Scourfield was bribed with designer watches, sex with prostitutes and exotic foreign holidays by his business associates for his role in the scam.

Judge Martin Beddoe said when sentencing him that Scourfield had "sold his soul ... for sex, for luxury trips with and without your wife, for bling and for swank."

($1 = 0.8031 pounds)

(Reporting By Andrew MacAskill and Lawrence White, Editing by Anjuli Davies and Alex Smith)