Collins inquiry chief's 'conflict'

THE 'independent' senior non-executive director who cleared Collins Stewart Tullett of serious regulatory failings was at the time within weeks of being allowed to cash in £113,000 of profits from Collins' share options.

Institutional investors say the director, John Spencer, could have been compromised because an adverse finding would have cost him personally if Collins shares had been hit. They dispute the firm's claim that he was independent.

Doubts over Spencer's independence are a fresh setback for Collins, which last night saw a key plank of its defence crumble when City of London Police cleared the man behind the allegations, sacked analyst James Middleweek, of blackmail.

Police said the Crown Prosecution Service had advised that neither Middleweek nor his solicitor Dale Langley had committed any offence.

Unusually for a non-executive director, Spencer has options over 63,766 Collins shares at 316p. Relatively small movements in the share price dramatically alter his potential profits.

He saw £79,000 wiped from his potential profits in the days after the scandal erupted as the shares slid, leaving his paper gain slashed to just £34,000. The bounce in the shares over the past few days has lifted his potential profit back to £71,000.

He is free to exercise his options from 15 October so long as Collins achieves return on capital targets.

Collins chairman Keith Hamill, who is also billed as 'independent' by the firm, faced a similar potential conflict of interest, because he too was just weeks away from being able to cash in share option profits of £158,000.

Although there is no suggestion that Spencer or Hamill would be swayed by the threat of their option profits evaporating it puts doubts on Collins' claim that they are independent.

Stuart Weavers, an analyst with corporate governance experts Manifest, said of Spencer: 'He is not considered to be independent according to the definition used by the Combined Code on Corporate Governance.'

A large institutional investor commented: 'This does complicate matters. In general we don't like non-execs to have options because it can compromise them.'

On 10 July, Spencer was appointed to chair a board committee to investigate allegations of impropriety made by Middleweek. He hired outside lawyers Clifford Chance, who found that the evidence did not support allegations of serious regulatory misconduct.

Hamill last night conceded the options schemes existed but argued that the sums involved were too small to have compromised him or Spencer, especially after tax and National Insurance of 47%.

'For many people it might seem a lot of money, but for us it is not large.'

Spencer was chosen to head the inquiry because he was the most senior and most experienced in financial services, Hamill said.

Spencer, 59, is also a non-executive director of Numerica, whose flotation by Collins featured in Middleweek's dossier of allegations, which has been sent to the FSA.