Scribd Logo
Upload

Welcome to Scribd!

  • 2K views

    Harsad Mehta Scam

    Uploaded by

    Gayatri Seth
    Harsad Mehta was an Indian stock broker who engineered a rise in stock prices on the Bombay Stock Exchange in 1992 by illegally siphoning funds from banks. He used the funds to purchase stocks at inflated prices, artificially driving up the Sensex. When journalist Sucheta Dalal exposed the scheme, it was revealed that Mehta had used fake bank receipts to obtain loans and funnel money into the market. The scam left many banks holding receipts without securities to back them, having been defrauded of Rs. 4,000 crore. The impact on the stock market was large, damaging investor confidence.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd

    Harsad Mehta Scam

    Uploaded by

    Gayatri Seth
    2K views12 pages
    Harsad Mehta was an Indian stock broker who engineered a rise in stock prices on the Bombay Stock Exchange in 1992 by illegally siphoning funds from banks. He used the funds to purchase stocks at inflated prices, artificially driving up the Sensex. When journalist Sucheta Dalal exposed the scheme, it was revealed that Mehta had used fake bank receipts to obtain loans and funnel money into the market. The scam left many banks holding receipts without securities to back them, having been defrauded of Rs. 4,000 crore. The impact on the stock market was large, damaging investor confidence.

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Harsad Mehta was an Indian stock broker who engineered a rise in stock prices on the Bombay Stock Exchange in 1992 by illegally siphoning funds from banks. He used the funds to purchase stocks at inflated prices, artificially driving up the Sensex. When journalist Sucheta Dalal exposed the scheme, it was revealed that Mehta had used fake bank receipts to obtain loans and funnel money into the market. The scam left many banks holding receipts without securities to back them, having been defrauded of Rs. 4,000 crore. The impact on the stock market was large, damaging investor confidence.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    2K views12 pages

    Harsad Mehta Scam

    Uploaded by

    Gayatri Seth
    Harsad Mehta was an Indian stock broker who engineered a rise in stock prices on the Bombay Stock Exchange in 1992 by illegally siphoning funds from banks. He used the funds to purchase stocks at inflated prices, artificially driving up the Sensex. When journalist Sucheta Dalal exposed the scheme, it was revealed that Mehta had used fake bank receipts to obtain loans and funnel money into the market. The scam left many banks holding receipts without securities to back them, having been defrauded of Rs. 4,000 crore. The impact on the stock market was large, damaging investor confidence.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 12

    SCAMS AFTER 1992

    HARSAD MEHTA
    SCANDAL
    KEY FACTORS

     HARSAD MEHTA.

     EARLY LIFE.

     STOCK MARKET SCANDAL.


    ▪ SUCHITA DALAL STATEMENT.


    ▪ SUCHITA DALAL INFORMATIONS.


     IMPACT ON STOCK MARKET.



    HARSAD MEHTA

     Was an Indian stock broker.


     Alleged to have engineered the rise in the BSE stock exchange in


    the year 1992.

     Siphoned off funds from inter-bank transactions and bought shares


    heavily at a premium.

     Triggering a rise in the Sensex, who was said to have started the
    bull run.

     72 criminal offenses and more than 600 civil action suits .


     Died in 2002 with many litigations still pending against him.


    EARLY LIFE

     Born in a Gujarati Jain family.



     Childhood was spent in Mumbai .

     His father was a small-time businessman.

     Moved to Raipur in Madhya Pradesh.

     Was back to Mumbai after completing his schooling at Raipur.

     Become a stock broker on the BSE.

     Lived almost like a movie star:-

    Ø In a 15,000 square feet apartment.


    Ø which had a swimming pool as well as a golf patch.



    STOCK MARKET SCANDAL

     Harshad Mehta was making waves in the stock market in


    1992.

     His attracted attention were those of Associated Cement


    Company (ACC) and use to give replacement cost theory
    as an explanation.

     Mehta getting his endless supply of money and no one had


    the clue.

     On April 23, 1992, journalist Sucheta Dalal in a column


    in The Times of India, exposed the dubious ways of
    Harshad Metha.


    (A) SUCHETA DALAL STATEMENT .

    IN TIMES OF INDIA IN (1992):-


     “THE BROKER WAS DIPPING ILLEGALLY INTO


    THE BANKING SYSTEM TO FINANCE HIS
    BUYING”.


    (B) SUCHETA DALAL INFORMATION

     Scam was effected through (i) READY FORWARD (RF)


    deal. The RF is in essence a secured short-term (typically
    15-day) loan from one bank to another.

     Bank lends against government securities.


     The borrowing bank actually sells the securities to the lending


    bank and buys them back at the end of the period of the
    loan, typically at a slightly higher price.

     It was this RF deal that Harshad Mehta used with great


    success to channel money from the banking system.


    CONT….
     A typical ready forward deal involved two banks brought
    together by a broker in lieu of a commission.

     The broker handles neither the cash nor the securities,


    deliveries of securities and payments were made through
    the broker.
    BUYER BANK
    SELLER BANK

    PAYMENT CHEQUE

    SELL SECURITIES PASS THE SECURITIES

    BROKER (HARSAD MEHTA)


    CONT…


     (ii) BANK RECEIPT (BR) “confirms the sale of securities”

     Securities were not moved in actuality, Instead the sellers, give the
    buyer of the securities a BR

     It promises to deliver the securities to the buyer, it also mean that the
    seller holds the securities in trust of the buyer.

     Having figured this out:
     Mehthaneeded banks, which could issue fake BRs, or BRs not
    backed by any government securities.

    CONT…

     Once these fake BRs were issued, they were passed on to


    other banks and the banks in turn gave money to Mehta,
    assuming that they were lending against government
    securities when this was not really the case.

     Money was used to drive up the prices of stocks in the stock
    market. When time came to return the money, the shares
    were sold for a profit and the BR was retired. The money
    due to the bank was returned.

     Once the scam was exposed though, a lot of banks were left
    holding BRs which did not have any value - the banking
    system had been swindled of a whopping Rs 4,000 crore.
    CONT…
     Till now, it is still unknown what was the real story behind the
    entire scam.

     The recent Hindi movie 'GAFLA' showed this scam in a


    different perspective.


    IMPACT ON STOCK
    MARKET

    You might also like