HARSHAD

MEHTA SCAM
SUBMITTED BY-:
ROCHIT BANTHIA- 15113097
RISHANT JAIN- 15113096

LETS START
WITH WHAT IS
SCAM

SCAM
A dishonest scheme,
obtaining money by means of
deception including fake
personalities, fake photos,
fake template letters, nonexistent addresses and phone
numbers, forged documents.

WHAT WE KNOW
ABOUT
HARSHAD
MEHTA
AND
KETAN
PAREKH

BOTH GAINED POPULARITY

FOR

Capital market scam?

It is basically fraud done in
the capital market with the
investors by manipulating the
facts in order to attain
enormous profit

CAPITAL MARKET?
The market for securities
where companies and govt.
can raise long term funds
It includes stock market and
the bond market

INTRODUCTION TO THE
BIG BULL OF THE TRADING
FLOOR

HARSHAD MEHTA- story

was anIndianstockbroker.
is alleged to have engineered the rise in
theBSEstock exchange in 1992
Exploiting several loopholes in the
banking system, Mehta and his
associates siphoned off funds from interbank transactions and bought shares
heavily at a premium across many
segments, triggering a rise in theSensex

 Now since Harshad Mehta was dealing with many banks at the
same time he could then keep some capital with him at all
times. For eg. He takes money from A on Monday, and tells B
that hell pay on Tuesday, then he takes money from C on
Tuesday and tells D that hell pay on Wednesday and the
money he gets from C is paid to B and as a result he has some
working capital with him at all times if this goes on with other
banks throughout the week. The banks at that time were not
allowed to invest in the equity markets. Harshad Mehta had
very cleverly squeezed some capital out of the banking
system. This capital he invested in the stock market and
managed to stoke a massive boom.

CONTD.
his Favorite stock
included
Tata iron
and steel
company

reliance

-ACC

- apolo
tyres

Videocon

- BPL

WHAT SCAM HE ACTUALLY

DID?

 litigations still pending against

him
When the scheme was exposed,
banks started demanding their
money back, causing the
collapse.
Mehta died in 2002 with many
litigations still pending against

THE FOLLOWER OF
THE BIG BULL- KETAN
PAREKH

Introduction

C.A by profession. Belongs from

Stock broking family background.
Former stock broker from Bombay.
Popularly known as pentafour bull.
Convicted in 2008, for involvement in
the Indian stock market manipulation
scam in late 1999-2001. currently he
has been debarred from trading in the
Indian stock exchange till 2017

SOME OF HIS FAVOURITE

STOCKS INCLUDE
Global Telesystems, Zee Telefilms, HFCL,
Silverline, Satyam Computers, Aftek Infosys,
DSQ Software, Ranbaxy, Pentamedia Graphics
and Visual Soft. Sometimes Digital Global and
SSI

RELATION BETWEEN HARSHAD AND KETAN

The story is quite similar, only the

players has changed .In 1992 scam
it was Harshad Mehta now it is Ketan
Parekh.
Both are big bulls.
Both of them use to buy stocks at
rock-bottom prices and push it up

 Although both were Gujratis, Ketan

has been trading in stock market
since two generations while Harshad
had no such background.
In both these scams banks were
involved. The HM scam was related to
bankers receipt while it was pay orders in
Ketan Parekhs scam

 In HM scam foreign banks including city

bank, standard chartered and ANZ
Grindlays were involved and in ketan
parekh scam foreign institutional
investors including Credit Suisse First
Boston and JP Morgan Stanley were
involved.
In HM scam state bank of India suffered the
loss of 660 crores while ketan owes around
rs. 130 crore to bank of india

THE MECHANICS OF THE

SCAM
3 STEPS INVOLVED
1) The settlement process in the govt
securities market become broker
intermediate that is delivery and
payment started getting routed through
a broker instead of being made directly
between the transacting banks

2) The broker through whom the payment

passed on its way from one bank to another
found a way of crediting the money into his
account though the account payee cheque was
drawn in favor of bank
3) While the 2 steps transformed an Ready
forward deal from a loan to a broker, it would
still be a secured loan. However, the brokers
soon found a way of persuading the lending
bank to dispense with security for the loan or
to accept worthless security

EXPOSURE OF HARSHAD MEHTA

SCAM
On april 23 1992 journalist
sucheta dalal exposed mehtas
illegal methods in TIMES OF
INDIA
The crucial mechanism through
which the scam was affected was
ready forward(RF) deal.

 Another instrument used was the

bank reciept
The two main banks who were
handy for this purpose were bank of
Karad(BOK) and metroplitian cooperative bank

 Once the scam was exposed a

lot of banks were left holding
BRS which did not have any
value
After the scam was reveled
the chairman of vijaya bank
committed suicide.

STEPS TAKEN BY SEBI IN RESPONSE TO

THE SCAM
Due to the traitor inside, trading in Bombay stock
exchange have been suspended. In order to
prevent misuse of sensitive information by broker
director, stock market will be corporate soon.
SEBI has imposed an additional 10% volatility
margin on all the A-group shares and additional
margin stocks in automatic lending and
borrowing mechanism(ALBM) and borrowing and
lending of security scheme(BLESS)

 The SEBI has also imposed volatility

margins on net outstanding sale position
of FIIS(financial institution, banks and
mutual funds)
In order to increase liquidity ,SEBI has
allowed banks to offer collateralized
lending only through BSE and NSE.

 The internal control system of the commercial

bank system involves the following features
1) separation of functions:- The aspects of
securities transaction of a bank, namely dealing
custody and accounting are carried out by
different person

 2)Counter party limits:-The moment an RF deal

is done on the basis of a BR rather than actual
securities the lending bank has to contend with
the possibility that the BR received may not be
backed by any adequate securities

OTHER ASPECTS OF THE SCAM

There are several aspects of the scam which
are closely related to the security markets, but
are different from the operational aspects of the
markets
Change in prices of securities.
On each occasion the coupon rate was
increased by 1/2%. Thereby raising from 11.5%
to 13% during this ten month period

CONTINUED.
With a daily trade in volume of Rs 3000n to
4000 crores it would have been very easy to
take a position(based on inside information)of
Rs 500 or Rs 1000 crores without anyone
suspecting anything unfavorable.

WHERE HAS ALL THE FRAUD

MONEY GONE?
Based on result of investigation and reporting
so far , the following are the possibilities
1)

Large amount of money invested in shares

2)

It is rumored that a part of money was

converted into dollar pounds and brought
back as India development bonds

 A part of money must have been spent as bribes and kick

backs to the various accomplishments in the banks and
possibly in the bureaucracy and in political system
A part of money might have been used to finance the losses
taken by the brokers to window dress various bank balance
sheets

IMPACT OF THE SCAM

The immediate impact of the scam was a sharp
fall in the shares prices . The index fell from
4500 to 2500 representing a loss of Rs. 100000
crores in the market capitalization.
The government liberalization policies came
under sever criticism after the scam with
Harshad Mehta

 Bowing to the political pressure and the bad

press it received during the scam, the
liberalization was put on hold for a while by the
government
SEBI postponed sanctioning of private sector
mutual fund

ANY SUGGESTIONS OR QUESTIONS

WILL BE APPRECIATED.