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