Harshad Mehta Scam

The Harshad Mehta Scam Exposed. The entire mechanism and who were the key parties involved, the aftermath and the effects of the scam on the stock market and the overall Indian Economy. The ethical issues involved and the action taken to prevent any such scams in the future by the government.

1. HARSHAD MEHT A: EXPOSED The “Big Bull”… Gone Wild

2. THE INDIAN STOCK MARKET & the Banking Sector: Home of the “Big Bull” Stock Market Lists the Indian companies on stock and trade shares . Banking Sector Gives loans, accept people’s deposits and regulate government accounts . POLICY - Every bank is supposed to invest certain amount in government securities/bonds at the end of everyday. Scam referred to as the ‘Technology security stock scam”

3. HARSHAD MEHTA “From rags to riches” Born: July 1954 to a Gujarati family of modest means Father: small time businessman in Mumbai Family shifts to Raipur, Mehta returns to Bombay, City of Dreams after completing education Started as Dispatch Clerk for New India Assurance Keen interest in the Stock Market Quits job in early 80s, becomes sub- broker for Shah & Sheth Starts investing heavily in Stock Market after being mentored by Shah & Sheth

4. “I thought I’d be like Pied Piper” 1987: Starts GrowMore Research & Asset Management along with brother Ashwin HARSHAD MEHTA On the rise Gets multiple stock exchange memberships “Charismatic, recklessly ambitious” ,role model for investors Makes waves in Stock Market: Replacement Cost Theory Darling of Business Media, earns name of “Big Bull” Flamboyant and flashy lifestyle Lives like a movie star: 15,000sq ft house, swimming pool, golf patch Taste for flashy cars leads to ultimate downfall

5. Issued cheque favoring HM on Day 1 Issued cheque favoring HM on Day 2 Issued Govt Bonds taken from Bank B Issued Govt Bonds taken from Bank C Sold Govt Bonds on Day 2 Sold Govt Bonds on Day 1 Promised to pay on Day 3 & presented fake BRs Promised to pay on Day 2 & presented fake BRs Repaid money taken from Bank D on Day 2 Issued fake BRs Excess funds channelized towards buying stocks HARSHAD MEHTA (Broker) BANK A BANK C BANK B STOCK MARKET BANK X BANK D MEHTA’S TRADE MECHANISM Buyer of securities Seller of securities

6. Who was involved? the who’s who Harshad Mehta The Indian Government Bank of Karad , Mumbai Metropolitan Co-operative Bank (MCB) - both the banks issued fake BRs. Associated cement company (ACC)

7. The ‘Big Bull’… Gone Wild Unearthing the scam

8. Charged with 72 criminal offences More than 600 civil action suits were filed against him . Convicted in September 1999: 5 years of rigorous imprisonment and a fine of RS 25,000 HARSHAD MEHTA The End of an Era Arrested on 9 th November, 1992 : Misappropriating 2.8million shares of 90 companies Scam value as per 1990s: Rs4000cr Allegation of bribe to PM of India Value as per 2011

9. “JUSTICE OR FARCE?” Rs . 6170 crore have been recovered and payments been made to major claimants like SBI and the Income Tax Department 270 cases still pending Junior bankers at SBI and UCO sentenced to rigorous imprisonment; Many left bankrupt, commit suicide Then Prime Minister P.V. Narsimha Rao and other politicians allegedly associated with the scam remained totally unaffected ?

10. Sharp fall in share prices. Genuine investors were being suddenly robbed by the government as their shares became worthless pieces of paper. The governments liberalization policies came under serious criticism. Foreign mutual funds became more remote than ever. Euro issues planned by many companies has to be re-evaluated. Concept of Bank Receipt finally removed The Aftermath impact of the scam