Will Evolution bosses survive the scrum?

FEW companies can have such a colourful corporate history. Alex Snow, chief executive of stockbroker Evolution, boasts that for four years the firm has doubled its revenues - every year. But Evolution has also been beset by a string of scandals and mishaps.

It was fined £500,000 for market abuse last year. In the past, a former analyst was fined for insider trading. Chairman Richard Griffiths provoked comment when it emerged that he had been a big trader in shares of an Evolution client, mobile phone content provider Incite, which was censured for failing to disclose price-sensitive information. And investors who have backed several fundraising exercises organised by Evolution for its client companies recently have seen the value of their investments collapse.

Then last week came Evolution's biggest blow. Regal Petroleum - an oil company for which the broker had helped raise £45m only last month - admitted that its exploration efforts were not going as hoped. Investors who had been encouraged by Evolution to buy Regal shares at 390p saw the price plunge to 107p.

The fury of Evolution's clients was clear. Several indicated that having been stung over Regal, they would think more than twice before agreeing to support any future fundraising. The Financial Services Authority is known to be interested.

Now Evolution has conceded that its top management will have to, well, evolve. Insiders are predicting that the two-man team of chief executive Snow and chairman Griffiths will not survive. Griffiths is expected to stand down as Evolution tries to rebuild its reputation.

One company insider said: 'Richard has made a lot of money for a lot of people and has really grown the business. But he's very colourful and often controversial. He's probably not the ideal chairman for a serious brokerage and investment bank.'

Griffiths will not go straight away. To do so would suggest he accepted that Evolution was to blame for the Regal debacle. 'But I think it will happen sooner rather than later,' said the source. 'He is not attached to being called chairman. I believe he doesn't give a fig for the title.'

And at this week's annual meeting, Evolution will announce the appointment of a new non-executive director to bolster the board, Financial Mail on Sunday has established. City sources said a senior banker with long City experience will join the firm.

Griffiths and Snow have done extremely well out of Evolution. Last year, each received a salary of £100,000 - modest by City standards. But there was also a 'performance cash bonus' - a cool £1.6m for each of them. And then there was a further bonus, paid for Evolution having sold shares in an offshoot company. In total, Griffiths' pay for 2004 was £3.03m. Snow's was £2.95m.

The fact that Evolution is prepared to take aggressive positions in trading shares is no secret. Last year's £500,000 fine for distorting the market stemmed from a decision by one of the firm's market-makers to back his hunch that shares in catering delivery firm Room Service would fall. His bets covered shares equivalent to two-and-a-half times the company's entire share capital.

And analysts reckon that last year, Evolution made about £15m from trading shares on its own account - not far short of the £20m in commissions earned from trading for clients. In contrast, rival Numis made only £2m from share dealing on its own behalf compared-with £11m in commissions. One analyst said: 'No investor in Evolution is going to complain about the firm making money from trading, but it clearly raises the level of risk.'

Evolution is defensive about the Regal disaster. 'The signs that Regal was risky were all there in the open,' a senior figure in the firm admitted. 'Regal gave a full trading update the day before the placing and it is late reporting results - and late results are never about unexpected good news.'

Evolution moved quickly in the wake of last week's disaster. The broker was understood to be behind Regal's announcement on Thursday that its executive chairman Frank Timis - a man with previous convictions for possession of heroin with intent to supply - would relinquish his chief executive role.

Snow, a 6ft 7ins former rugby player for Harlequins, is determined to face down his critics. 'We are no more accident prone than anyone else. You have to look at our overall record,' he said. 'Our flotations are at a significant premium to the performance of the market.'

And Evolution may even manage to ride out its latest upset. A company source said: 'After the problems last autumn, everybody said Evolution would never raise another pound, but we have actually been stronger than ever and our 14 flotations this year are 25% up overall.'

There may yet be life after Regal.