Actually he is the Lord of Hatred. The eldest of The Three Prime Evils.
In 990BC Mephisto captured and tortured Izual (an angel who tried to attack the Hellforge), and learned of the Soulstones being created by the Angels. He gained insight into the mystical properties of the Runesword, the Crystal Arch and the Soulstones.
Izual, who had by now fallen into the Darkness, suggested that the Soulstones might be manipulated by the Three in order to channel great amounts of power from Hell directly into the Mortal realm. The Three then secretly manipulated the events leading to the Dark Exile.
See also Diablo for more complete story.