Lloyds TSB is to pay out $12.5m (£6.25m) for its alleged part in a $100m-plus foreign currency scam in the United States.

Though not admitting liability, the British bank has agreed a settlement to compensate victims of the fraud in a US class action suit in the name of Ralph Gonzales, a private investor. Man Financial, the futures and derivatives trader spun out of Man group in July and now called MF Global, has agreed to pay $4.1m in the same case - again without admitting guilt.

The class action alleged that Lloyds TSB, Man Financial and the Californian accountancy firm Kaplan, Swicker & Simha aided and abetted a breach of fiduciary duty and fraud and contravened sections of RICO - the Racketeer Influenced and Corrupt Organisations Act.

Mr Gonzales was one of more than 300 investors who bought into a currency scheme sold between July 1998 and February 2003 by Moshe Leichner and his son Zvi. In messages on internet bulletin boards, the two promised investors they would gain 2-4% a month by foreign currency dealing through their companies - most prominently Midland Euro Exchange. They took in an estimated $130m, including $40m from clients of one Florida investment adviser.

But the Leichners were operating a Ponzi scheme, where high returns are possible only if more and more new investors can be found to put in cash to pay out to scheme members who want to quit.

According to Debra Wong Yang, a Californian federal prosecutor, less than 20% of the money was actually invested. The rest was spent by the Leichners on themselves. They bought boats, houses and luxury cars as well as hiding away millions in secret offshore accounts.

Even though the US regulator, the National Futures Association, had barred Midland Euro from business in October 2001, and Zvi Leichner had been personally suspended in March 2000, the pair continued to enjoy banking and other financial facilities.

In 2003, the Leichners were arrested by the FBI. They pleaded guilty to wire fraud, money laundering and operating an illegal Ponzi scheme. Moshe was sentenced to 20 years, his son to 11 years.

Investors sued organisations they claimed had aided and abetted the Leichners - albeit unwittingly. After the Lloyds TSB and Man settlements, they expect to see about 30% of their money returned.

"The bank admits no liability," Lloyds TSB said. "The settlement has been reached to put an end to the distraction and expense of litigation."

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