Pearson rattled by Collins Stewart lawsuit

Pearson, the owner of the Financial Times, is being sued for £240m by the stockbroker Collins Stewart over the newspaper's reporting of its dispute with James Middleweek, a former employee.

Pearson, the owner of the Financial Times, is being sued for £240m by the stockbroker Collins Stewart over the newspaper's reporting of its dispute with James Middleweek, a former employee.

Shares in Pearson, led by Marjorie Scardino, its chief executive, fell 12p to 628p yesterday after a pre-trial hearing of the case was heard at the High Court in London on Thursday. Collins Stewart said the bumper claim was to compensate it for the damage that an FT article allegedly did to its share price. Shares in the broker fell by a fifth after the dispute with Mr Middleweek emerged.

The company is also arguing that its ongoing business has been hurt by the damage done to its reputation by the FT. Collins Stewart and its chief executive, Terry Smith, turned their fire on the newspaper last September over what it claimed was "thoroughly irresponsible" reporting of the high-profile fall-out between the company and a former analyst, Mr Middleweek, who was sacked for alleged "gross misconduct".

The FT had reported in detail claims by Mr Middleweek that the stockbroker had engaged in insider dealing, share ramping and biased research. The details, included in a report Mr Middleweek sent to the Financial Services Authority, are denied by Collins Stewart.

Schillings, lawyers for Collins Stewart, said in a letter to the newspaper that the article was "thoroughly irresponsible" and amounted to "muck-raking". It also pointed out that Mr Middleweek's report did not enjoy legal privilege.

The FT is fighting the claim. It wrote in an article yesterday that it stood by its story and that it believed there was a public interest in reporting the allegations. The High Court gave the FT a small boost on Thursday when it upheld its request for the case to be split into two parts. Collins Stewart must first pursue its libel claim, which will be before a jury. If the jury decides the newspaper did commit libel, Collins Stewart will then be able to press ahead with its case for damages. The case has been scheduled to come to trial in April next year, though the first part could be brought forward to this November.

Collins Stewart, the City's best known remaining independent stockbroker, is fighting Mr Middleweek in a separate case, which is also planned to come to court next year. It sacked the former employee after the firm alleged he tried to blackmail it into paying him £2.4m if he did not hand over his dossier of information to the FSA.

Mr Middleweek, who has emigrated to Australia, does not deny that he offered to shelve the report if his claim was settled. But he says the move was legitimate because he was not obliged to report his worries to the regulator.