The cheerleader brigade

At 2:15 pm on Friday, March 17, 2000, a little-known reporter blew a sizable hole in the stock of a high-flying, high-tech outfit called the Xybernaut Corporation’’ — The Fortune Tellers: Inside Wall Street’s Game of Money, Media and Manipulation.

THE company, The Washington Post’s media reporter Howard Kurtz tells us, was on a roll. Its stock which was at $1.31 last October touched a dizzying $30 two weeks earlier. That’s when David Evans of Bloomberg filed a report saying the company’s Securities and Exchange Comm- ission (SEC) filing showed a serious funds shortage. Xybernaut’s stock plunged, to under $15.

On Monday, the company said the journalist had given an alarmist spin to a warning they put in every one of their SEC statements since going public in 1996, but raising funds had never been a problem. On Tuesday, Xybernaut said the company would be featured that evening on CNBC ... the mere announcement boosted its stock 24 per cent, to over $21, says Kurtz.

At 5:39 pm Evans filed a story on the research firm that said Xybernaut’s stock price would double in six months. Evans found its head was a former Xybernaut executive, who owned options to buy shares in the firm. But before this could have any impact, at 6:21, CNBC’s anchor was introducing the Xybernaut section. ‘‘You can wear just about everything else, why not your computer? It turns out you can ... A small company called Xybernaut has already made big strides in the hands-off computer sector.’’ By 7 pm, CNBC’s Business Center reported Xybernaut had gained another dollar!
Soar, plunge, soar ... Welcome to the constant avalanche of ‘analysts’ on television channels, newspapers, and now even online, who can make or break stock, openly seducing investors into parting with their life-savings. And when the information is wrong, no one is held accountable.There’s another story to tell, another hot tip to broadcast ...

Cut to the Cyberspace-UTI controversy currently centrestage in India, and you’ll see a remarkable similarity in the seduction-manipulation game. Arvind Johari and his Cyberspace Infosys, it is apparent, was a shady firm which was ramping up its stock prices to a dizzying Rs 1,200 per share at one point using ‘circular trading’ and other methods — the firm was even christened in a manner to trick investors into believing it was a cousin of Narayana Murthy’s Infosys Technologies. How did our media handle this?

On January 31 last year, Business Standard recommended buying Cyberspace. ‘‘Cyberspace’’, it said, ‘‘focuses on development and customisation of projects in areas like client server technologies ...
e-commerce and internet solutions ... its current year’s earnings are discounted by 73 times. With many big funds investing in this stock it definitely holds good potential.’’ Get it? The fact that others were buying the stock was a reason for buying it— in other words, the buy-tip was part of the process of market-building.

The Economic Times did one better. ‘Be Indian, Buy Silicon’ raved the paper’s Corporate Dossier of June 9 to 14 last year. ‘‘It’s feeding times for piranhas’’, the story said perkily. ‘‘If you’re Indian and in IT, this is probably the best time to go shopping for global companies. Summer sales are open ...’’. And then while talking of how companies like Murthy’s Infosys were planning overseas acquisitions, ET said ‘‘Cyberspace Infosys, a leading Lotus notes solution company in India is open about the fact that it’s on the hunt.’’ Cyberspace’s PR chaps couldn’t have done a better job.

Are newspapers corrupt, are they part of the brokers-syndicate that is dizzily ramping up share prices? The few black sheep apart, it seems unlikely. The larger point, however, is that it’s only when the stock markets are booming, and the economy’s cruising, that the circulation of an Economic Times or the viewership of a CNBC goes up. So there is an in-built vested interest in hyping up what could be considered ‘good news’.

A good example is that of a leading media group publishing stock-columns by scamster Harshad Mehta in 1998, well after he was exposed for what he was. Now whether this was to raise circulation or to help Harshad ramp up select stocks is anybody’s guess — the newspaper, fellow Express columnist Sucheta Dalal tells us, defended its decision by describing Harshad as a ‘‘man of eminence in his profession’’ writing ‘‘in public interest’’(!).

It’s not just the media. Kurtz quotes a Georgia State University study which found that analysts issued earnings estimates that were six per cent higher, and put out 25 per cent more ‘buy’ recommendations, when their firm had an investment banking relationship with the companies involved! A recent Reuters report quotes SEC chairwoman telling the US Congress that the SEC found 25 per cent of analysts at nine unnamed firms invested in companies before they went public that they subsequently covered.

What hope is there for the investor then? Force investor-forums or other organisations, maybe even government agencies like SEBI, to collect such information on ‘analysts’ and media reporting, and publicise them extensively. It may not be enough, but it’s a beginning.

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