Insider claim hammers Collins

SHARES in stockbroker Collins Stewart tumbled 32 1/2p to 457 1/2p after startling accusations against the firm by a former employee. The fall wiped £60m off the market value of Collins, which had been heading towards £1bn.

In documents lodged in the High Court and sent to the Financial Services Authority, James Middleweek, sacked as an equity analyst last month, accuses Collins of allowing insider dealing in its own equity, sharing price sensitive information with market makers and pressurising analysts to produce favourable research on house stocks.

The firm, run by chief executive Terry Smith, denies the allegations, first revealed in the Mail on Sunday. But Smith took them so seriously he brought in City law firm Clifford Chance to conduct an independent investigation.

Clifford Chance interviewed 25 members of staff, reported to senior independent director John Spencer and is said to have given the firm a clean bill of health.

Middleweek claims he was removed as the analyst for Millfield and Numerica, where Collins Stewart was broker, because he refused to puff the share price. He alleges that his boss, Paul Compton, said his research was 'too even handed'.

Collins denies this, saying it had lost confidence in his analysis.

Its own court documents say: 'The words 'too even handed' were used by Paul Compton as a charitable description of the negative views of the note by senior staff.'

The analyst tracked the performance of 16 small companies for which Collins raised funds between November 2001 and June 2002. By June 2003 only one share was above the float price (another has since joined it). Three were in receivership, one was suspended pending clarification and ten had halved or worse. However, markets fell sharply in 2002.

Middleweek said hefty fees were charged for small issues. Two companies, Tricorn and Kuju, paid Collins a full 20% of the sums raised. Eight small firms handed over £5m after raising £40m.

Middleweek claims that in May Collins told favoured clients it had won the bidding for Northumbrian Water, allowing them to trade using inside information. Compton is accused of publishing a buy note on Symphony Plastics in March at 30p, two weeks before a placing at 18p.

Collins says it 'does not accept that it has acted in any way which constitutes any regulatory offence and denies any allegations of the same'.

Middleweek is demanding £3m for unfair dismissal. Collins Stewart accuses the former analyst of attempted blackmail, saying his solicitors offered to bury the allegations if he got £2.4m. It has passed its accusations on to the City of London police and the FSA.

It argues his allegations emerged only in May, after he had been reprimanded for 'poor performance'.