He was the Pied Piper of 1992. The Bombay Stock Exchange sensitive index danced to his tune, as did a few million shareholders who went into a buying frenzy merely on rumours that the Big Bull - Harshad Mehta, was interested in certain scrips. He led an extraordinary bull run through the second half 1991, fuelled by a seeming endless supply of money.
The bull frenzy came to an abrupt halt on April 23, 1992 when it was revealed that the broker was simply dipping into the banking system to finance the boom. Also revealed was a complicated web of deceit and illegal deals that had been taking place in money markets under the cover of "accepted market practice". The stock market crash that followed caused huge losses to gullible investors, but few seem to have learnt any lessons.
Five years later, even before a single case filed against him had been decided, the ever ebullient Harshad Mehta was making a high-profile comeback in the guise of an investment guru. His second trip to fame was halted, not because investors had turned savvy or that the media refused to take him seriously but due to his own follies.
The comeback story is worth telling, because of the utter simplicity with which Harshad Mehta was able to manipulate the press and through it, investor sentiment. It is also important, because investors constantly blame everybody (government, brokers, companies etc.) but themselves when their own greed or gullibility causes them to make foolish investments and lose money.
When the former Big Bull made his move in early 1997, it had the trademark flash and flamboyance that marks all his activities. His personal tip-doling website was the starting point. When it began to attract attention, he set about getting some powerful but informal spin-doctors in the media (read senior journalists) to hard-sell his column to newspaper editors/owners, depending on who was more pliable or powerful.
The sales pitch: Harshad's column would send circulation figures soaring as investors snapped up the publication for stock tips. Leading those who carried the column was India's largest newspaper group -- Bennet Coleman & Company. Navbharat Times, its Hindi language paper was the first to carry the column and the flagship Times of India, was next in line. To Harshad, recognition by the Times of India would have been the final stamp of legitimacy, because it was this paper that first broke the story of the Securities Scam.
So confident was he, that he had even sent me copies of his photographs, ostensibly to be carried with his column which was to appear in the business pages. A few senior journalists, particularly the then Editorial Advisor H.K.Dua strongly objected to the move. The plan to carry the column in the Times of India was shelved at that time, but the one in the Hindi paper continued.
The only serious objection to Harshad Mehta's comeback was a complaint to the Press Council of India (PCI) filed by Prof. Manubhai Shah, the Managing Trustee of the Consumer Education and Research Centre (CERC) of Ahmedabad in February 1998. It was filed against the Navbharat Times. CERC asked whether an acknowledged scamster such as Harshad Mehta should be allowed to write columns which would influence investors and whether in the process, this lowered the profession of journalism.
He also said that the group which had first exposed Harshad Mehta's role in the scam, was now out to "glorify" him by giving him a regular column. By allowing a person ``involved in the most discreditable and unmatched unethical misconduct, in pursuit of wealth through unscrupulous means'' to write a column, he said, the newspaper had "seriously affected general public interest and morality".
The Times of India group, clearly unfazed, defended its decision with the astounding stand that Harshad Mehta was a "man of eminence in his profession" who was writing "in public interest". Its lawyers said that he had fundamental right of freedom of speech and expression and that his column was the same as those by lawyers, artists, academicians and others with "proficiency, expertise and knowledge" in their professions, communicating their views through the media.
The group claimed that Harshad Mehta was "only a prime suspect in a certain scam" and it was his fundamental right as a citizen to "express his views through any media", including newspapers.
Prof. Shah filed a counter to this stand pointing out the difference between a citizen's fundamental right to defend himself or to air his views and the writing of a regular column with a photograph dispensing stock tips. He colourfully compared this to a convict being asked to write a column on firearms because of his expertise on the subject. Navbharat Times this time came back saying that a dozen other newspapers were also carrying the column. The Press Council then expanded the scope of the complaint and referred the matter to an Inquiry Committee.
While the Committee was examining this issue, the payment crises of June 1998 erupted and the brokers' who had helped rig prices of Sterlite, Videocon and BPL lost heavily in the market. By the end of October 1998, the Securities and Exchange Board of India (SEBI) had openly linked Harshad Mehta to the June stock market crisis demonstrating the danger in allowing Harshad Mehta to influence the press.
Earlier this year SEBI ordered the BSE President and Executive Director to go following a SEBI investigation into the manner in which the June crisis was hushed up by the exchange. There was little need after that to establish the dangers of the Harshad Mehta column.
Manubhai Shah's complaint becomes even more relevant because the PCI had chosen to put out a special Code of Ethics for business journalists in 1996. Let me quote from the March 27, 1996 issue of The Outlook magazine on the Code: PCI chairman Justice P.B.Sawant said "there are enough instances to show that they (business journalists) have been misusing their position". And that this was prevalent on a scale large enough for the Council to "take cognisance of it".
Justice Sawant said that a general code of ethics which applied to journalists did not cover the malpractices of financial journalists and hence the special attention to this category. Harshad Mehta' case clearly fits the description of "misuse of the power of business journalism", this time, with the active support of newspaper managements.
The PCI also wanted its code of ethics for business journalists to "protect investors" since they "enjoy considerable influence over their readers' minds".
Amazingly enough, the PCI never ever reacted to Harshad Mehta's columns, until Manubhai Shah actually filed a complaint and forced an examination of the issue. Surely the column, was more dangerous than petty corruption by salaried journalists in accepting gifts, discounts, free trips and so on, which had so exorcised the Press Council in 1996?
The Inquiry committee of the Press Council finally announced its recommendations in February this year. It said that while there was no legal bar on newspapers asking persons who were involved in scandals or had cases pending in courts of law, to write columns, it was "an unhealthy and unethical practice".
It said that it "strongly disapproves the practice" and "agreed with the complainant that this gives respectability to such persons. It "noted with dismay that the Times of India group, which had exposed" Harshad Mehta's involvement in the financial scam was "providing respectability to him as a journalist".
If Harshad Mehta's columns have vanished since June 1998, it has nothing to do with the Press Council. The payment scandal forced the broker to shut down his website and lie low until an opportune time. Had he been acquitted in the relative inconsequential Securities Scam case relating to Maruti Udyog, he would have been back
Thanks to Justice Rane, neither Harshad Mehta, nor his supporters can now claim that he is merely an accused - he is now a person convicted by the Special Court to try scam offences. With 26 more cases to go the chances of Harshad's re-emergence as a media guru have vanished.
But the fact remains, that but for the June 1998 debacle, he would have been back as a messiah of the market with a huge following of greedy and gullible investors lapping up his stock tips. Maybe next time this happens a few vigilant investors would be moved to complain.