On 13 January, the Securities and Exchange Board of India, India’s capital market regulator, found Hemant Ghai, an anchor and journalist with CNBC-Awaaz, and two family members, guilty of fraudulent trades based on advance information. A SEBI order barred Hemant from dealing in securities, giving investment advice or sell-and-buy recommendations. Hemant anchored a show called Stock 20-20 which aired on weekdays from 7.20 am, before markets opened. The SEBI found that Hemant, his wife Jaya Ghai and his mother Shyam Mohini Ghai indulged in a large number of buy-today-sell-tomorrow trades—commonly called BTST trades—in which the Ghais purchased shares a day before they were given buy recommendations on the following day’s show. When the share price rose, the scrips would be sold for a profit. These trades were executed through MAS consultancies, a financial-services company. The SEBI’s investigation found that the Ghai’s profits from these trades amounted to Rs 2.95 crore. As of yet, no penal action has been taken by the police against Hemant or MAS consultancies. Hemant Ghai has been fired by the Network18 group, the parent company of CNBC-Awaaz.
The SEBI’s investigation focused on the trading patterns of Jaya and Shyam Mohini between 1 January 2019 and 31 May 2020 and found that the two executed a large number of BTST trades in synchronisation with the recommendations made by Hemant during his Hindi-language morning show. The SEBI’s order notes that shares were purchased the previous day through the trading accounts of Jaya and Shyam Mohini and sold the next day immediately after Hemant recommended purchase or sale of the same shares on his show. The trades were executed through MAS Consultancies, a unit of the Motilal Oswal group, based in the town of Mehsana in Gujarat. The SEBI order states, “Based on call records, it is observed that Mr. Hemant Ghai was in regular contact with Mr. Parth Anilkumar Raval over the course of the relevant period. Mr. Hemant Ghai was also in communication with Mr. Bhavesh Kumar Patel … on some occasions.” Raval is the equity research head of MAS while Patel is part of the management team. Raval did not respond to multiple messages and phone calls. Patel answered his phone, and when I asked him about MAS’s role, he replied, “there is no issue,” before hanging up. SEBI did not take any action against MAS consultancies in its order, though it is not clear why. Madhabi Puri Buch, the wholetime board member of the SEBI who passed the order, did not respond to an email asking about the lack of action against MAS consultancies.
“The anchor would take a position [in shares] before giving a recommendation. As soon the recommendation comes out general investors who follow the anchor would buy those shares in bulk quantities which caused the price to go up. At that point he would sell the share,” the chairman and managing director of a Delhi-based brokerage who wished to remain anonymous, told me. “This is a practice called front trading, where you buy for yourself, before you recommend, and it is illegal as per SEBI rules because you are taking advantage of the system.”
In its order, the SEBI has outlined how the BTST trades worked. “Mr. Hemant Ghai knows that a buy recommendation in some scrips will be given on the show co-hosted by him, before the market opens in the morning.” (Scrips is another term for shares.) The order continued, “There is a reasonable expectation that as soon as the market opens, there will be a significant increase in the price of a scrip on previous close. There is a reasonable expectation that there will be a significant increase in the volume traded during the recommendation day. If on the previous day he knows which scrips are going to be given ‘buy recommendations’ then he knows that buying those scrips on the previous day of recommendation and selling them on the recommendation day can be profitable.” The regulator noticed at least ninety BTST trades synchronised with scrip recommendations by Hemant worth Rs 100 crore over the time period of the investigation.
For instance, on 8 January 2020, Jaya Ghai purchased 52,000 shares of Aptech Limited—an education company—at Rs 159.15 a piece for a total value of Rs 82.76 lakh. The next day, Hemant gave a “buy” recommendation for the scrip, following which the shares were sold between 9.15 am and 9.22 am for Rs 183.19 per share. The profit from the deal was Rs 12.5 lakhs. Similarly, on 19 February, 2020 orders were executed from the trading account of Shyam Mohini Ghai to purchase 2 lakh shares of JK Paper Limited—a Chennai-based paper manufacturer—at Rs 125.73 apiece and sold the next day at Rs 131.79 per share, at a margin of Rs 12.12 lakh.
The SEBI noted in its order that even though Hemant Ghai “appears to be a market expert in the family, the trading was in the trading accounts of Jaya Hemant Ghai and Shyam Mohini Ghai, perhaps an attempt to avoid direct regulatory surveillance.” The order also noted that Hemant failed to alert investors that he and his relatives had taken buy positions and had substantial pecuniary interests in scrips which they sold on the day of recommendation. This, the regulator says, is a violation of the SEBI Act of 1992 and SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations of 2003. The SEBI investigation has only uncovered Rs 2.95 crore in fraudulent transactions from Hemant and his family. Vivek Kaul, a freelance writer who has written extensively about finance argued in an article for the online news platform Newslaundry that front trading is common in business journalism circles and the amount Ghai had earnt was “small fry.”
“The Network18 group has terminated with immediate effect Mr Hemant Ghai, a show host and anchor with our Hindi business channel CNBC Awaaz,” Supriya Saxena, the spokesperson of Network 18, wrote in an email to me. When asked if the channel had mechanisms to prevent such violations, Saxena only pointed to a code of conduct all employees are asked to sign. “All employees of Network18 are required to pledge themselves to a code of conduct which, among other things, expressly forbids the manipulation of prices of listed securities. Mr Ghai was also a signatory to the code of conduct,” she wrote. The SEBI order also required CNBC-Awaaz to “bring to the notice of the viewers of the shows co-hosted by Hemant Ghai that SEBI has passed an interim order against him for prima facie violations of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.” Saxena said that the network had informed its viewers and informed the SEBI that it had done so.
Although not directly related to front trading, SEBI and the Press Council of India, in 2010, released guidelines which required media companies to disclose their stakes in the corporate sector. Called “private treaties,” the practice refers to media companies purchasing stakes in listed companies or those coming out with public offers, in exchange for providing media coverage through advertisements, news reports and editorials, which helped to build the company brand. In the guidelines the SEBI expressed “concern” that private treaties may not only give rise to conflict of interest, but result in the dilution of the independence of the press. “It was just a recommendation and like all recommendations from the Press Council it was completely ignored by the media,” Sukumar Muralidharan, a professor at the Jindal School of Journalism and Communication in Haryana, said.
In 2008, before the guidelines were published, Meleveethil Damodaran, who was the SEBI chairman at the time, had raised questions about the practice of business television anchors talking up and talking down stocks. Speaking to the Indian Express that year Damodaran said, “When we heard the term anchor investors first, I thought anchor investor is the guy that brings in a lot of money initially into a project around whose reputation others invest. I am beginning to believe at the end of my three-year tenure that an anchor investor is one who is an anchor and an investor put together. I am worried that those who are responsible … who take the message to a billion plus people who will hopefully, one day be interested in the market. If that message gets distorted, what happens?”
“The Hemant Ghai episode, along with the Arnab chats do not paint the Indian media in good light,” Muralidharan said. He was referring to leaked messages between Arnab Goswami, the editor in chief of Republic TV and Partho Dasgupta, the former CEO of the Broadcast Audience Research Council. “It is a big crisis in credibility, but you can’t be sure that there will be any consequence. All the big corporations have acquired huge stakes in media houses and there is no transparency about it. SEBI and the Press Council had worked out some suggestions for disclosure norms, but like all Press Council recommendations it was ignored by the media.”