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LONDON, Nov 14 (Reuters) - Lloyds Banking Group said on Wednesday it had settled with an ex-employee who accused former bosses of concealing a massive fraud at its HBOS Reading unit, prior to a record-breaking cash call needed to keep the combined group afloat in 2009.
The bank apologised to Sally Masterton, a former senior risk officer at Lloyds, and said that it had agreed to pay her financial compensation.
Britain’s biggest mortgage lender, which took over HBOS in 2009, reopened Masterton’s case earlier this year after coming under pressure over its treatment of her and how it handled her allegations.
That followed the publication of a report, written by Masterton in 2013, which alleged HBOS executives knew of the fraud years before the takeover and failed to properly disclose it, with implications for the HBOS deal.
On Wednesday, Lloyds said Masterton had acted with integrity and good faith at all times, and that she documented her concerns in a report following a request from the bank - a point it had previously disputed.
“I am pleased that Lloyds Banking Group has listened to me... and has recognised the distress and inconvenience this has caused me,” Masterton said in a separate statement.
She took leave from her duties at the bank and left in 2014, having never returned to work there.
The publication of Masterton’s allegations, in a document known as the Project Lord Turnbull report, revived criticisms of Lloyds’ handling of one of the industry’s worst-ever frauds, weighing on the reputation it has worked hard to rebuild in the years since the financial crisis.
The fraud, which took place in the early 2000s, saw the conspirators use their positions to enrich themselves at the expense of struggling business clients, some of which succumbed to insolvency and were stripped of their assets after being advised to borrow unsustainable amounts.
Six people were jailed for a combined 47 years for the fraud in February 2017.
Lloyds has apologised to victims and set up a 100 million pound compensation scheme. The bank said it handed Masterton’s report to regulators and the police in 2014.
The Financial Conduct Authority (FCA) is conducting a probe into HBOS and what its executives knew of the fraud prior to the Lloyds acquisition, while a retired judge Linda Dobbs is looking at whether Lloyds properly investigated the incident after it acquired HBOS in 2009.
Britain’s National Crime Agency has also expanded a review into the fraud. (Reporting by Emma Rumney, Sinead Cruise and Kirstin Ridley; Editing by Lawrence White and Alexandra Hudson)