Watchdog to probe Collins deal

THE Financial Services Authority is looking into a sale of shares in stockbroker Collins Stewart by a close contact of James Middleweek, the sacked analyst whose allegations of insider dealing have knocked almost £200 million off its stock market value.

The sale of 25,000 shares took place only hours after Financial Mail contacted Middleweek about a damaging writ he had served on the stockbroker, which was likely to severely hit its share price. The shares were sold when Collins Stewart's price was rising strongly.

Separately, it has emerged that City of London police received a complaint about a tracking device found under Middleweek's car late last week. Collins Stewart denies involvement.

The new revelations mark a further escalation in the bitter row between Middleweek and Collins Stewart, led by its fiery chief executive Terry Smith.

Last week, a police investigation into blackmail allegations levelled by Collins Stewart against Middleweek was dropped. Collins Stewart denies Middleweek's central allegations of insider dealing and share ramping.

The watchdog is now examining the sale of Collins Stewart shares by a hedge fund managed by Jeremy Benjamin - part of Eden Group, a London-based financial company.

It is believed the sale represented a short position whereby a trader sells shares in anticipation of a drop in the price.

Benjamin, who admits speaking to Middleweek since news of the sensational allegations broke in Financial Mail, said he had 'no recollection' of talking to him on Friday, August 22 - the day we first contacted Middleweek about the allegations. Shares in Collins Stewart closed at a high of 490p that day.

Benjamin said: 'I don't see what the relevance of this is.' He said his funds under management were 'massive', adding that his firm had held a short position in Collins Stewart shares since March 2002. He declined to comment further.

The size of the fund's short position was small, but traders claim it is difficult to take large positions on a Friday afternoon, particularly ahead of a Bank Holiday.

Collins Stewart shares subsequently fell to 379p, giving Benjamin a paper gain of about £28,000 on the transaction. They closed at 389p last week.

Benjamin was a close contact of Middleweek during his time at Collins Stewart. He attended one of two meetings - records of which have been seen by Financial Mail - hosted by Middleweek about boxing promotion firm Sports Leisure, floated by the stockbroker in March 2002. Kyte Fund Management-also part of Eden Group, subsequently bought almost 667,000 shares for £100,000. Benjamin was the contact. In a separate report to the FSA attached to his writ against Collins Stewart, Middleweek described the deal for Sports Leisure, in which boxing promoter Frank Warren owns 50,000 shares, as 'flawed'.

Middleweek refused to comment on the short selling allegations, but one source said: 'He really has got bigger fish to fry.'

Two days after he was fired for alleged 'gross misconduct', Middleweek sold Collins Stewart shares worth £390,000.

Middleweek confirmed that he has made a formal complaint about 'a sophisticated tracking device'.

Collins Stewart, which denies responsibility, has asked Middleweek's lawyers about the cloning of Smith's mobile phone. Middleweek has denied any knowledge.

How the latest drama unfolded . . .

MONDAY: Collins Stewart says it will sue the Financial Times for defamation, claiming its coverage of the scandal, published three days after Financial Mail's report, was neither balanced nor responsible.

TUESDAY: Chairman Keith Hamill confirms that contrary to previous claims, Collins Stewart did not give Middleweek's full 'report' of allegations to the FSA, but had merely notified it of the allegations.

WEDNESDAY: City of London police drop their investigation into blackmail allegations levelled against Middleweek by Collins Stewart.

THURSDAY: It emerges that Hamill and non-executive director, John Spencer, who headed the internal investigation, have share options in Collins Stewart. Hamill says neither of them would have been influenced by potential profits. The sum involved was 'not enough to heat my swimming pool for a year,' quipped Hamill.

FRIDAY: Shares in Collins Stewart close at 389p - 101p lower than the Friday before Middleweek's allegations were revealed in Financial Mail. The fall wiped almost £200 million off the company's value.