MPs have called for an inquiry into Lloyds Banking Group (LBG) over a fraud at its HBOS unit in Reading after a Scottish businessman published online a confidential report into the issue.

Neil Mitchell, a frequent critic of Britain’s big banks, alleged that HBOS executives knew of the fraud as early as 2004 and failed to properly disclose it, with far-reaching implications given Lloyds’ takeover of HBOS in 2009.

Yesterday, the All Party Parliamentary Group (APPG) on Fair Business Banking called for the probe after the so-called Project Lord Turnbull Report, written by a former Lloyds manager in 2013 and given to the Financial Conduct Authority (FCA) a year later, alleged the bank mishandled its investigation and disclosure of the fraud following the takeover.

The AAPG said the allegations that HBOS had concealed the fraud should be subject to “full, forensic and expeditious investigations by regulators”. It has also asked for a fresh investigation into KPMG’s audit of HBOS in 2008, claiming it “gave the bank a clean bill of health only two months before it hit financial difficulty”.

A Lloyds spokesperson repeated an earlier statement that the FCA was currently looking into the report’s claims.

MPs had urged Lloyds to publish the Turnbull report last week before Mitchell took matters into his own hands, saying it was his “gift to all victims of bank crimes and their families”.

Mitchell, former chief executive of Torex Retail, said: “I take this latest action in the public interest indeed in the national interest of my country… All my actions are focused on the pursuit of justice and compensation for all victims of RBS and Lloyds banks – the two state bailed-out, state majority-owned, state-regulated banks – to the extent that through HM Treasury this is effectively state-sponsored financial terrorism.”

He said the report exposed “criminal misconduct” by Lloyds and HBOS managers and a subsequent cover-up by executives, and added: “I believe that we the people must now see political movement towards changing these banks’ toxic, exploitative, greedy cultures with political/regulatory/police/ legal actions to create customer-centric banks, starting now.”

In its statement, Lloyds did not address the substance of the report’s allegations that it misled investors over its financial health.

The FCA is conducting a probe into HBOS and what its executives knew of the fraud, while a retired judge is probing whether Lloyds then properly investigated the incident after it bought HBOS in 2009.

A former Lloyds manager wrote the report in 2013 after she had taken her concerns to the police. It said that Lloyds mishandled its investigation and disclosure of the fraud after taking over HBOS in 2009.

Lloyds said the former manager began looking into the bank’s handling of the fraud case on her own initiative, and was then asked to write the report when she alerted the bank’s audit department.

“As soon as it came to Lloyds’ knowledge, the then head of group audit asked the employee to set out what she had found,” a spokesperson said. “It was then provided to the FCA and the police.”

The report said that if HBOS

had properly disclosed the fraud

in its 2007 annual report, the £4 billion 2008 rights issue that stabilised its financial position and subsequent takeover by Lloyds, would not have happened.