Allegations prompt fresh slide in Collins Stewart

Terry Smith's Nightmare Week: Claims by a former analyst have left the independent British investment bank reeling

Collins Stewart rounded off what is likely to be the worst week in its history with another 9 per cent fall in its shares yesterday, closing at 379p. The brokerage, which specialises in small company stocks, has seen £208m wiped off its value since the start of the week.

The dramatic slide in share value was the City's reaction to the emergence last weekend of a dossier alleging insider dealing, share ramping and biased research at the company compiled by one of its former analysts, James Middleweek.

Mr Middleweek, who was sacked last month for allegedly trying to blackmail his former employer, issued a writ in the High Court and also sent his report to the Financial Services Authority. Vigorous denials of the allegations by Collins Stewart and an independent report clearing it of wrong doing by law firm Clifford Chance have failed to halt the downwards direction of the company's shares.

Now rival brokerages are circling Collins Stewart's clients. Kuju, a niche computer games developer, has ditched the company, saying it had swapped to Noble & Co because it was cheaper and had specific expertise in the computer games market.

While Collins Stewart is not thought to have lost any other clients, there were rumours that one large brokerage had obtained a copy of Mr Middleweek's statement of claim. The FSA is sifting through Mr Middleweek's report and the City of London police are looking into both parties' accusations.

Mr Middleweek has gone from being a little-known media analyst to one of the most talked about figures in the City in the past six days.

His claims include that the share prices of a number of companies, including Epic Brand Investments, Numerica and Millfield, were maintained at "artificially high".

Mr Middleweek's former colleagues Paul Hodges and Jimmy Durkin are accused of being prepared to "do everything possible to maintain share prices of companies in which their clients are involved, including withholding relevant information". He alleges that he was stopped from covering Numerica, an accountancy group, and Millfield, which owns a chain of independent financial advisers, after he had been "too even handed". He was allegedly prevented from downgrading Numerica late last year.

It has also emerged that John Spencer, Collins Stewart's senior independent director who received the Clifford Chance report, is also a non-executive director of Numerica.

A spokesperson for Collins Stewart said: "This is a perfectly normal state of affairs. He is an extremely respected and experienced individual."

Mr Middleweek asserts that few colleagues supported the flotation of Epic Brands, but salesmen did place the stock with clients "under duress and under threat of sackings or loss of bonus", the report to the FSA says. The allegations are particularly sensitive given that Milestone, another client of Collins Stewart that has been caught up in the inflammatory row between Mr Middleweek and the brokerage, was forced to issue a statement on Thursday saying trading was in line with expectations after its shares slumped 20 per cent.

Mr Middleweek has also said that market makers were allegedly told about fund-raisings in companies such as the pubs operator Belhaven and Cobra Biomanufacturing before they were announced. Collins Stewart also allegedly boosted its own profits by taking big stakes in some attractive share issues it was overseeing at the expense of its clients. He alleges this happened in the case of Cobra.

Collins Stewart also engaged in "over zealous issuing of overvalued and low-quality stocks", according to Mr Middleweek. He says he pressed for a £10m valuation of Milestone, a small media company, while other Collins Stewart staff were pressing for £20m before reducing the target to £12m. The equity was valued at £11.8m and the broker raised £9.5m of new money. Its shares have lost nearly half of their value since their issue at 118p.

Mr Middleweek alleges that dramatic drops in the share price of Milestone and many other new issues handled by Collins Stewart demonstrates the "small, low-quality nature of the stocks concerned, the overpricing, and the lack of due diligence Collins Stewart will have performed".

The company also leaked details of its forthcoming merger with Tullett & Tokyo to boost its share price, Mr Middleweek alleges.

Mr Middleweek also alleges that Terry Smith, chief executive of Collins Stewart, told staff that the company had successfully clinched the deal to buy Northumbrian Water from France's Suez without making an attempt to tell salesmen to keep the information confidential until it was announced. "One of the purposes will have been to solicit buyers of Collins Stewart shares," he alleges.