Lloyds fraud victims bemoan 'pyrrhic victory' as compensation scheme drags

By Andrew MacAskill and Lawrence White

LONDON (Reuters) - Lloyds Banking Group is set to miss an end-June deadline for offering compensation to victims of one of Britain's largest fraud cases, the latest delay in a decade-long struggle by business owners for redress.

Two former bankers at Lloyds' HBOS Reading business were among those jailed in February for their involvement in the scam, which affected 64 people, including Noel Edmonds, a TV presenter and former disc jockey.

Lloyds set up a 100 million pound ($128 million) compensation scheme in April and set the end-June deadline for payment to victims hit by the fraud, which involved siphoning off money from struggling businesses.

According to one source with knowledge of the matter, less than a fifth of the 64 victims have received compensation offers and only one has reached a settlement with the bank.

Edmonds is seeking more than 70 million pounds in compensation for businesses he alleges were destroyed by the fraud. He has set up a website with an "honesty countdown" clock showing the time remaining for Lloyds to meet its self-imposed deadline.

Lloyds on Tuesday said it now plans to make compensation offers to some customers by the end of June.

Others "might need more time to provide input into the review," it said.

A bank spokesman said in an email: "Our focus is on swift, fair and appropriate compensation."

HBOS, once Britain's biggest mortgage lender under the Halifax and Bank of Scotland brands, had to be rescued in a state-engineered takeover in 2008 by rival Lloyds Banking Group. Lloyds subsequently needed a 20 billion pound bailout of its own after taking on HBOS.

Victims of the fraud have accused the bank of dragging out the compensation process and underestimating the final amount it will have to pay.

"Lloyds clearly just want to grind down its fraud victims by a process of attrition, making the process of getting recompense as difficult and frustrating as possible to force them into accepting less than their entitlement," Jonathan Coad, a lawyer for Edmonds said.

The jailed bankers pushed struggling business owners to employ a costly turnaround consultancy as a condition for receiving loans and, in some cases, hand over ownership.

One of the bankers received designer watches, exotic holidays and sex with prostitutes in return for referring clients to the consultancy, evidence presented in the trial showed.

The delay in compensation is adding to the stress of victims, some of whom have lost their homes or investments and had families crumble, said Nikki Turner, one of the victims who helped to uncover the fraud with husband Paul.

"We were vindicated in court but it's been a bit of a Pyrrhic victory - we can't get on with our lives," Turner told Reuters on Tuesday.

($1 = 0.7847 pounds)

(Reporting By Andrew MacAskill and Lawrence White. Editing by Jane Merriman)