Wednesday, 15 March 2017

Turnaround rort

Let's get the politics out of the way first. Blair, Brown, Balls and Mandelson let the UK economy rip in the early years of this century, matching an economic loosening under Bill Clinton in the USA. Part of this evil spell was Ed Balls' "light touch" regulation which led to the crash of many financial institutions, including at least one based in New York. The lack of regulation* also meant that dishonest bankers could use their position to strip decent small and medium-sized enterprises of their assets. One such scheme drove around 200 SMEs, customers of HBOS, to the wall. Because Lloyds and RBS were also unnecessarily pushing companies into administration for the sake of profit, a large segment of the SME base was removed in the period leading up to the 2007/8 credit crunch because of these criminal and dubious practices.

The story of one of HBOS's customers who suffered at the hands of the fraudsters is told here. The writer is a journalist who came to the aid of Nikki and Paul Turner (and helped drain four bottles of wine on his first visit, according to their testimony on BH on Sunday) after all their other avenues of complaint had been blocked. Their joint investigation revealed the industrial scale of the embezzlement at HBOS's rogue unit in Reading.

The way that the Turners was ripped off was typical. Journalist Ian Fraser explains:

The Turners blamed this on a rogue Bank of Scotland senior manager whose improbable name sounded like that of a Victorian villain – Lynden Scourfield. They alleged that Scourfield, lead director of impaired assets at HBOS’s Bank of Scotland Corporate unit, had been working in cahoots with a band of self-styled “turnaround consultants” dubbed Quayside Corporate Services, which was led by David Mills, who I later discovered had left his former employer, Lombard North Central, the factoring and invoice discounting arm of National Westminster Bank, under a cloud in 1995.

The seemingly wilful destruction of Zenith
[the Turners' music business] sounded bad enough. But what made me realise this story had legs was that the Turners had documentary evidence to back up every claim, and had already done a significant amount of research into the activities of Scourfield, Mills and Quayside. Critically, they had discovered that Zenith was not alone in having been treated shabbily.

They had identified dozens of other businesses across the UK which had been through the mill at the hands of Mills and Scourfield and, in many cases, the punishment meted out had been far worse than that endured by Zenith. The affected firms came from a wide range of sectors including aviation, consumer credit, music publishing, packaging, nightclubs, restaurants, sporting goods, textiles and top-shelf magazines – and included well-known brands like Smollensky’s on the Strand, Euromanx airline and magazine Asian Babes.

The modus operandi of the fraud, which I confirmed in interviews with directors of other affected firms, included that the companies would, often arbitrarily and without notice, see their bank accounts transferred to the tutelage of Mr Scourfield’s “high risk” team based at Beauclerc House, Reading. Many of the companies that were transferred were not in default or financial difficulties. Triggers included that they had sought additional facilities to fund acquisitions or growth, or just that Scourfield and his cronies had taken a fancy and had cherry-picked them from across the Bank of Scotland network.

The next step was that Scourfield would force the companies to adopt Quayside personnel as advisers, shadow directors or directors, effectively using blackmail to ensure the companies acquiesced. The standard threat was, if they did not comply, they would be “shut down”. With Quayside in the driving seat, Scourfield would then turn on the monetary taps, granting huge and usually unserviceable additional loans to the firms concerned, a process sometimes eased through by the writing of fake business plans, which Scourfield used to placate his seniors in the bank. Those who were responsible for signing off his loans are believed to have included Paul Burnett, who wound up working for Mills.

The next thing that the legitimate owners and managers of the affected firms knew was that Quayside personnel – the most unsavoury of whom were David Mills, Michael Bancroft and John “Tony” Cartwright – started behaving liked trumped up Mafiosi, treating the companies as their own personal ATMs and syphoning out cash, dressed up as “consultancy fees”, to fund lavish lifestyles, exotic holidays, foreign real estate buying binges and romps with high-class hookers as well as generous bribes and “inducements” along similar lines for Scourfield, who was sometimes also known as “Gerard”. All the while, Mills and Co were destabilizing the businesses, plundering their assets, and setting them on a path towards insolvency.

The Turners have lost over ten years of their lives when they should have been enjoying themselves running a thriving music business, but at least they will get financial recompense. There may even be a feature film deal. The courts protected them when the bank unjustifiably and repeatedly tried to possess their home. That is the good part of the story.

The depressing part is the fact, revealed when the case finally came to court, that in spite of denials at the time, the people at HBOS responsible for investigating crime within the organisation were well aware in 2006 that financial crime was being committed. There is also the strong suspicion that accomplices avoided prosecution and are still working in business banking. Moreover, the big accounting firms who must have known what was going on have escaped action. Nor is there any sign that the incentive to produce profit regardless has gone away.

*Fraser suspects worse, that the regulator (FSA) "may well have been compromised. In 2003, chancellor Gordon Brown made the bizarre decision to appoint the then HBOS chief executive, James Crosby, as a non-executive director on the regulator’s board, a role Crosby took up on 15 January 2004. The appointment came hard on the heels of claims from Crosby, made in a speech to a Merrill Lynch banking conference on 7 October 2003, that the UK government was guilty of 'unnecessary meddling in the SME banking sector'."

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