Collins Stewart faces new crisis

COLLINS Stewart, the City stockbroker fighting claims of insider dealing that knocked £200 million off its stock market value, faces fresh allegations this weekend about its business tactics.

Financial Mail has established that regulators in Guernsey and Jersey are investigating the firm, among others, as part of a probe into the massive split capital trust debacle, which has cost investors a total of £6 billion.

And documents submitted to a Commons select committee accuse the company of advising investors to buy products that were designed to boost its own profits. These allegations were not investigated further by the committee and were challenged by Collins Stewart at the time.

The new allegations follow claims in a High Court writ, revealed last week by Financial Mail, of insider dealing and selling overvalued shares to investors. Collins Stewart denies all the claims.

Collins Stewart is already among a dozen banks and fund managers under investigation in London by the Financial Services Authority, though few UK-based individuals have complained about its role. But regulators in Guernsey and Jersey are dealing with private clients who have lost money in Collins Stewart-sponsored split capital trusts bought on the advice of the stockbroker.

Richard Pratt, director-general of the Jersey Financial Services Commission, said that he was carrying out two investigations into the split capital trust scandal, one related to the management of Jersey-based funds and one into mis-selling trusts to investors.

Sources in Jersey confirmed that Collins Stewart was one of the firms being probed.

'The mis-selling investigation is simpler and I hope to announce the action we propose to take before the end of the year,' said Pratt.

Collins Stewart sponsored almost a dozen split capital trust flotations and also ran large share placings, mostly organised by Rolly Crawford, one of the high-earning bankers who invented the split trust. But since the stock market nosedived, half of the issues have run into difficulty. Six have been suspended from trading. Investors in the troubled trusts could lose up to £800 million if their share prices do not recover.

Split capital trusts were offered as low-risk investments but in fact borrowed heavily and took out cross-shareholdings in each other's funds.

Financial Mail has also obtained copies of documents submitted to the select committee looking into the split-capital trusts debacle from a Bahamas-based company, Limbort, managed from Guernsey.

Limbort bosses Trevor Kelham and Emma Roberts claimed that Collins Stewart's Guernsey-based asset management arm had advised on investments, but that recommendations were designed to maximise asset manager's profits. Collins Stewart denies advising on any investments on behalf of Limbort, which, in its original complaint had apparently failed to set out the details either of the advice received or the investments purchased.

Terry Smith, chief executive of Collins Stewart, told Financial Mail that the Limbort reports were a ploy by a 'professional litigant' to extract money.

He claimed: 'I was visited in September 2002 by a man named Danny Hill. We investigated his claims and found them to be baseless and the legal threat has not materialised.'

Hill, one of Australia's richest men, was branded by a judge as 'unscrupulous and opportunistic'.

The judge said that Hill 'admitted lying as a business tactic'.