Image copyright Thames Valley Police Image caption Left to right: Michael Bancroft, David Mills and Lynden Scourfield enjoyed luxury holidays from the scam

MPs are urging the owner of HBOS, Lloyds Banking Group, to pay compensation to victims of a fraud facilitated by two former employees, who were jailed last week.

They also want assurances the bank will review its handling of the fraud and publish its findings.

The fraud took place before Lloyds Banking Group took ownership of HBOS.

The bank has always claimed to be a victim of this crime.

'Cheated, defeated and penniless'

Two corrupt employees of the bank imposed a firm of so-called turnaround consultants on their small business customers in exchange for bribes, including cash and prostitutes.

The consultants then used their relationship with the bank to bully the business owners into handing over extortionate fees and assets such as shares in their companies.

In the words of the judge they were left "cheated, defeated and penniless".

Former HBOS banker Lynden Scourfield was given a jail sentence of 11 years and three months, while consultant David Mills was jailed for 15 years.

Michael Bancroft, 73, was jailed for 10 years; Mark Dobson, 56, another former HBOS manager, was sentenced to four and a half years. The two were jailed on counts including bribery and money laundering.

Alison Mills, 51, and John Cartwright, 72, were given three and a half year sentences for money laundering.

One other defendant, Jonathan Cohen, was acquitted at the trial.

'Personal stress'

MPs on the All-Party Parliamentary Group on Fair Business Banking have sent an open letter to the bank's chief executive, Antonio Horta-Osorio, and its chairman, Lord Blackwell, urging the bank to pay proper compensation to the victims of the fraud.

Chair of the parliamentary group, George Kerevan MP, said in the letter: "We are at a point where, once again, there are a large group of aggrieved business people who have lost their livelihoods.

"Critically, many have endured years of financial duress and personal stress."

Mr Kerevan went on to say that detailed complaints of the "criminal activity were raised with senior HBOS Management at board level and as early as 2007 and were repeated to senior Lloyds management after the takeover.

"In both instances, there was an internal failure to adequately investigate these complaints.

"Further, police investigations were delayed because both HBOS and subsequently Lloyds informed the authorities that it was the bank that was the wronged party - rather than small business customers - but that the bank had no wish to pursue a prosecution," he added.

It has also emerged, in confidential documents disclosed to the Sunday Times over the weekend, that assets of business customers who were victims of the fraud were being held on trust for the bank.

The company holding them, called Sandstone, was nominally run by the ringleader of the fraud, David Mills.

But the documents reveal senior bank staff regarded the assets as belonging to the bank.

Lloyds Banking Group said in a statement: "From what the Bank has found, Sandstone's use was merely part of the corrupt practice of two corrupt individuals and the positioning of Sandstone as otherwise is merely the false statement of corrupt individuals who have been found guilty by the Courts."

Analysis by the BBC's Economics Correspondent, Andy Verity

Fair point - or post-truth denial?

You decide.

David Mills, the ringleader of the HBOS fraud jailed for 15 years, put many of the assets stripped from small business customers into the Sandstone Organisation, a company nominally controlled by him. But did those ill-gotten gains then belong, unofficially, to the bank?

Mills said Sandstone was a shareholding company "where we are effectively controlling shareholding, on behalf of the bank". It was, he said: "a vehicle to hold shares to the bank's order". Was he lying?

Former HBOS executive Tom Angus said in a witness statement: "This is a totally alien concept…I can see no legitimate reason for them to do so."

Lloyds Banking Group told us today Sandstone's use was "merely part of the corrupt practice of two corrupt individuals". Now watch the words carefully: "The bank has found no evidence…that Sandstone was in fact used to hold shares…on behalf of the bank."

Now put your detective head on and look at page two of this memo between bank executives, in the section titled Loan Book, paragraph 1. Sandstone is "a holding company for a number of our high risk cases…" [our emphasis]

Now look at this email (pdf) from the bank's lawyers, Walker Morris, stating that Sandstone "will hold the shares as nominee for the bank."

And we can also reveal that in the Agreed Facts from the trial (bottom of paragraph 120), it says: "The shares were being held by Sandstone on trust for the bank."

Image copyright PA Image caption Zenith, the publishing firm run by Paul and Nikki Turner, was run into the ground

Some of the victims lost their companies, livelihoods and even their homes due to the scam.

Paul and Nikki Turner, from Cambridge, tried to report what was going on after their publishing company, Zenith, was run into the ground by the scammers.

They said they have had to fight hard for 10 years to have the fraud recognised.

This week, the MPs on the All-Party Parliamentary Group on Fair Business Banking are launching an inquiry into dispute resolution processes covering small firms and their lenders.

They are giving Lloyds the opportunity to give evidence and to take part in a pilot scheme for alternative dispute resolution.

Lloyds' response

Lloyds Banking Group has reiterated the statement it gave after the trial, saying "the verdicts relate to criminal acts committed by two individuals within HBOS in conjunction with external parties more than a decade ago" and that it has assisted Thames Valley Police throughout the process.

It went on to say: "Whilst we have fully reviewed customer concerns raised previously, we will review any new concerns on a case-by-case basis taking into account any relevant new information from the trial.

"The trial highlighted criminal actions that bear no reflection on the behaviours of the vast majority of the employees of HBOS at the time or in the group today."