Harshad affair needs to be probed deeper

Clearly small speculators were not exactly rushing to invest their money in the four Harshad scrips; the majority was watching to see if his magic will last. Unlike 1992, Mehta8217;s hype and media columns failed to enthuse genuine investors. All that it did was to generate very short speculative transactions by operators who made a quick buck but were not left holding the rigged up stocks. How does one react to SEBI8217;s findings?Clearly the SEBI team of investigators, albeit under pressure of public interest litigation, has partially salvaged its credibility by clearly establishing Mehta8217;s market manipulations.

But the findings also show that SEBI has failed to act on similar investigations conducted a couple of years earlier and that its failure emboldened Harshad Mehta and his cronies to repeatedly manipulate the market. Let8217;s look beyond Friday8217;s findings. Harshad Mehta8217;s brazen re-emergence in 1998, and the crises in June, has been the fourth time that he has sent the market into convulsions since he was trapped as the main accused in the securities scam of 1992 the other two times was through the introduction of benami shares.

Every time, he has been helped by the same set of six odd brokers who have been suspended by SEBI this time. Worse still, the market manipulation has been led and protected by BSE vice president Rajendra Bhantia, whose firm Harvest Deal Securities has been suspended by SEBI. SEBI8217;s topexecutives who have been aware of Bhantia8217;s close links with Mehta and the CBI investigations against him in the Oil India Development Board transactions , among others allowed him to become the treasurer of the BSE and later its vice president.

In 1995, the same broker was involved in a huge inter-exchange operation to hammer down prices of Reliance and other companies. This time SEBI investigators, after a two year effort had categorical proof to link Bhantia with the price manipulations in the Pune and other exchanges.

Though action was initiated against other exchanges, the broker was allowed to get away.

The Bhantia-Mehta duo clearly decided that they were unstoppable and engineered the re-emergence of Mehta. Even after the crises, Bhantia played a lead role in BSE8217;s bail out of brokers, following which it denied a payment problem and refused to declare a single defaulter. SEBI chief, D.R.Mehta was also perceived as an active supporter of the BSE action, even while the more efficientNSE declared six broker defaulters. While SEBI has promised to put out separate reports on the exact nature of Mehta8217;s manipulations, the report cannot be complete without investigating the manner in which the BSE covered up the payment problem in June.

Similarly, SEBI has yet to investigate the BSE clearing house mess. In July this year, the BSE clearing house, was short of over Rs 140 crores of securities. An investigation was ordered only after persistent newsreports suggested collusion with brokers. The inspection report commissioned through an independent chartered accountant has submitted his report. That too should be made public. SEBI8217;s ineffectual regulation and the impression that it has often supported the actions of the BSE have cost the market dear. Speculative trades far exceed deliveries and a majority of speculators are unwilling to hold their position for more than a few hours.

The bigger operators manipulate price signals by shifting their trades from one exchange to another.After years of debate, SEBI has yet to force a system of uniform settlements. The result is a highly volatile market, where the intra-day movement of the sensitive index is often over a hundred points. SEBI is not alone in failing to check Harshad Mehta and his cronies.

The finance ministry was aware that a coterie of brokers with large inter-exchange transactions has openly manipulated markets. Yet, they did nothing to instill confidence in the regulatory process. Ironically, the appellate authority of the finance ministry may end up hearing an appeal, which Rajendra Bhantia allegedly plans to file if he is asked to step down from the BSE vice presidentship.

The Press Council of India too has been silent about newspapers who legitimised Harshad Mehta8217;s manipulation and helped him influence investors by publishing his columns. Though the council brought out a code of conduct for business journalists way back in 1996, it obviously did not cover Harshad Mehta, so much so that those of us opposed toHarshad Mehta8217;s media manipulation had little support from the Council.