What Harshad Mehta did?

The Stock Scam

In the early 1990s, the banks in India had to maintain a particular amount of their deposits in government bonds. This ratio was called SLR ( Statutory Liquidity Ratio). Each bank had to submit a detailed sheet of its balance at the end of the day and also show that there was a sufficient amount invested in government bonds. Now, the government decided that the banks need not show their details on each day, they need to do it only on Fridays. Also, there was an extra clause that said that the average %age of bond holdings over the week needs to be above the SLR but the daily %age need not be so. That meant that banks would sell bonds in the earlier part of the week and then buy bonds back at the end of the week. The capital freed in the starting of the week could then be invested. Now, at the end of the week many banks would be desperate to buy bonds back. This is where the broker comes in. The broker knew which bank had more bonds (called plus) and which has less than the required amount (called short). He then acts as the middleman between the two banks. Harshad Mehta was one such broker. He worked as a middle man between many banks for a long time and gained the trust of the banks senior management. Lets say that there are two banks A (short) and B (plus). Now what Harshad Mehta did was that he told the banker at A that he was dealing with many banks and hence did not know who would he deal in the end with. So he said that the bank should write the cheque in his name rather than the other bank (which was forbidden by law), so that he could make the payment to whichever bank was required. Since he was a trusted broker, the banks agreed. Then, going back to the example of bank A and B, he took the money from A and went to B and said that he would pay the money on the next day to B but he needed the bonds right now (for A). But he offered a 15 % return for bank B for the one day extension. Bank B readily agreed with this since it was getting such a nice return 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, 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. Read Indian Stock Market Articles He took the price of ACC from 200 to 9000.Thats an increase of 4400%!!!The market went up like crazy and the bulls were on a mad run. Since he had to book profits in the end, the day he sold was the day when the market crashed. The same day Vijaya Bank chairman committed suicide by jumping from the top of the banks office. The chairman knew that when it would become public that he had written cheques in the name of Mehta, he would be dead meat. One rather unknown fact about this scam is that there was a very important player in this scam who managed to keep a very low profile. That man was Nimesh Shah. He was just as involved as Harshad Mehta but he

knew how keep out of the hands of the law. Nimesh Shah still deals in the stock market and is known to be a heavy player. Harshad Mehta is now dead. It is rumored that when he died, he still had 10% of ACC shares with him.

Big Bull' Harshad Mehta dead

Our Bureau

MUMBAI, Dec. 31 STOCK broker Mr Harshad Mehta died in the early hours of Monday at the Thane civil hospital following a brief heart ailment. Mr Mehta, who was 47, is survived by his wife and two sons. Mr Mehta was under judicial custody in the Thane prison after a special court remanded him and his two brothers, Mr Ashwin Mehta and Mr Sudhir Mehta, in a fresh case of misappropriation. According to sources, Mr Mehta complained of chest pain late last night and was admitted to the civil hospital where he breathed his last around 12.40 a.m. The body was moved to J.J. Hospital for post-mortem. Mr Mehta and his brothers were arrested by the CBI on November 9 for allegedly ``misappropriating (in 1992) more than 27 lakh shares of about 90 companies, including Sensex heavyweights such as ACC and Hindalco, through forged share transfer forms.'' The total value of the shares was placed at Rs 250 crore. The two brothers have been granted temporary bail for five days following the death of Mr Harshad Mehta. Mr Harshad Mehta started his career as an employee of New India Assurance Company but later quit the job to play the stock market. By 1991, Mr Mehta had become the most recognisable and revered icon of the stock market. Considered a financial genius by many, he was nicknamed the Big Bull who single-handedly decided the course the markets would ply. At the peak of his glory, Mr Mehta lived in a 15,000 sq.ft. house with its private swimming pool and golf patch. His lavish lifestyle and flashy cars were the stuff known only of movie stars.

His ``bull'' run, however, ended in April 1992 when the stock market scam broke out bringing down in its wake several financial entities and causing despair to millions of investors. The man who was singularly credited with the rise of the market was also squarely blamed for the crash. Mr Mehta's fall from grace was as fast as his meteoric rise. Investigations revealed that his ``unending resources'' were actually siphoned off from the banking system. According to investigators, he had devised an ingenious way of using bank receipts to feed the stock market frenzy. He was arrested and banished from the stock market with investigators holding him responsible for causing a loss of more than Rs 4,000 crore to various entities. Mr Mehta again raised a furore in 1995 when he made a public announcement that he had paid Rs 1 crore to the then Congress President and Prime Minister, Mr P.V. Narasimha Rao, as donation to the party for getting him ``off the hook.'' The decade-long tug of war with the law that started in 1992 was continuing when Mr Mehta died. He had altogether 28 cases registered against him. The trial of all except one, are still continuing in various courts in the country. Market watchdog, Securities and Exchange Board of India, had recently banned him for life from stock market-related activities. Mr Mehta perhaps had as many admirers as critics. If he was loathed by some, he was revered by many. But almost all of them admit that he caused a ``change'' in the Indian stock market, permanently.

Some people call him a thief and for some he is a one who told, how to play in the stock market. He actually showed the potential of the Indian Stock Market and took it to new heights which were never imagined then. He is none other than Harshad Mehta An Indian stockbroker and is alleged to have engineered the crash in the BSE stock exchange in the year 1992. What all he did: Exploiting several loopholes in the banking system, Harshad and his associates siphoned of funds from inter-bank transactions and bought shares heavily at a premium across many segments, triggering a rise in the Sensex. When the scheme was exposed, the banks started demanding the money back, causing the collapse. He was later charged with 72 criminal offenses and more than 600 civil action suits are filed against him. He died in 2002 with many litigations still pending against him. His early life:

In the early eighties he quit his job and sought a job with stock broker P. Ambalal affiliated to Bombay Stock Exchange (BSE) before becoming a jobber on BSE for stock broker P.D. Shukla.In 1981 he became a sub-broker for stock brokers J.L. Shah and Nandalal Sheth. After he came out of this big struggle for survival he became stronger and his brother quit his job to team with Harshad to start their venture GrowMore Research and Asset Management Company Limited. While a brokers card at BSE was being auctioned, the company made a bid for the same with financial assistance from Shah and Sheth, who were Harshad's previous broker mentors. He rose and survived the bear runs, this earned him the nickname of the Big Bull of the trading floor, and his actions, actual or perceived, decided the course of the movement of the Sensex as well as scrip-specific activities. In April 1992, the Indian stock market crashed, and Harshad Mehta, the person who was all along considered as the architect of the bull run was blamed for the crash. It transpired that he had manipulated the Indian banking systems to siphon off the funds from the banking system, and used the liquidity to build large positions in a select group of stocks. When the scam broke out, he was called upon by the banks and the financial institutions to return the funds, which in turn set into motion a chain reaction, necessitating liquidating and exiting from the positions which he had built in various stocks. The panic reaction ensued, and the stock market reacted and crashed within days.He was arrested on June 5, 1992 for his role in the scam.

Harshad Mehta
From Wikipedia, the free encyclopedia Jump to: navigation, search This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (June 2009)

Harshad Shantila Mehta (Hindi: ) was an Indian stockbroker. He is alleged to have engineered the rise in the BSE stock exchange in 1992. Exploiting several loopholes in the banking system, Mehta and his associates siphoned off funds from inter-bank transactions and bought shares heavily at a premium across many segments, triggering a rise in the Sensex. When the scheme was exposed, banks started demanding their money back, causing the collapse. He was later charged with 72 criminal offenses, and more than 600 civil action suits were filed against him. Mehta died in 2002 with many litigations still pending against him

Contents
1 Early life 2 Stock Market Scam 3 See also 4 References

5 External links

[edit] Early life

Harshad Shantilal Mehta was born on 29 July 1954 in a Gujarati Jain family of modest means. His early childhood was spent in Mumbai (Kandivali), where his father was a small-time businessman. Later, the family moved to Raipur in Chattisgarh after doctors advised his father to move to a drier place on account of his health. Mehta studied in Holy Cross Higher Secondary School, Byron Bazar, Raipur.

[edit] Stock Market Scam

Mehta gradually rose to become a stock broker on the Bombay Stock Exchange and had an expensive lifestyle. He lived in a 15,000 square feet (1,400 m2) apartment, which had a swimming pool as well as a golf patch. By 1990, Mehta had risen to prominence in the stock market. He was buying shares heavily. The shares which attracted attention were those of Associated Cement Company (ACC). The price of ACC was bid up to Rs 10,000. When asked, Mehta used the replacement cost theory as an explanation. . Through the second half of 1991 Mehta had earned the sobriquet of the Big Bull, because he was said to have started the bull run. On April 23, 1992, journalist Sucheta Dalal exposed Mehta's illegal methods in a column in The Times of India. Mehta was dipping illegally into the banking system to finance his buying. The authors explain: The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jeweller. 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 ready forward deal that Mehta and his accomplices used with great success to channel money from the banking system. 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, though that wasnt the case in the lead-up to the scam. In this settlement process, deliveries of securities and payments were made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. In this settlement process, the buyer and the seller might not even know whom they had

traded with, either being known only to the broker. This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank. Another instrument used was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e., the seller of securities, gave the buyer of the securities a BR. As the authors write, a BR confirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence the name - bank receipt. It promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer. Having figured out his scheme, Mehta needed banks which issued fake BRs, or BRs not backed by any government securities. Two small and little known banks - the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) - came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee, the authors point out. 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. This 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. The game went on as long as the stock prices kept going up, and no one had a clue about Mehtas modus operandi. 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. When the scam was revealed, the Chairman of the Vijaya Bank committed suicide by jumping from the office roof. He knew that he would be accused if people came to know about his involvement in issuing cheques to Mehta. M J Pherwani of UTI was also died in this scandale. Mehta made a brief comeback as a stock market guru, giving tips on his own website as well as a weekly newspaper column. This time around, he was working with owners of a few companies and recommended only the shares of those companies. This game, too, did not last long.[1] By the time he died, Mehta had been convicted in only one of the many cases filed against him. The Mehta scandal was portrayed in a recent Hindi movie, 'Gafla.'[2]

CAPITAL MARKET ? The capital market is the market for securities, where companies and govt. can raise long term funds. It is a market in which money is lent for periods longer than a year. The capital market includes the stock market and the bond market What is Capital Market scam

It is basically fraud done in the Capital market with the investors by manipulating the facts in order to attain enormous profits.?
INTRODUCTION TO THE BIG BULL OF THE TRADING FLOOR. : INTRODUCTION TO THE BIG BULL OF THE TRADING FLOOR.

PICTURE OF HARSHAD MEHTA OVERVIEW WHO IS THIS MAN? HARSHAD MEHTA- story
Started 1 his career with New India Assurance Co. 2 Quit his job in 1981 to become a sub-broker. 3 Went bankrupt in 1982 & recovered soon to become more stronger. 4 Went on to become one the most successful broker The Rags to Riches Story, thereby earning the nick name of THE BIG BULL

WHAT WAS THE SCAM ALL ABOUT

1 Diversion of funds 2 Use of Ready Forward (RF) to maintain SLR (Statutory Liquidity Ratio) 3 Creative Accounting 4 Intra-day Trading

INTRODUCTION TO BIG BULLS LIFE

Family :gujarati jain family Father : Mr Shantilal Mehta , a small businessman Harshad Mehtas childhood was spent in Mumbai Later, the family moved to Raipur , Madhya Pradesh. Somehow Harshad Mehta did

not find his future in Raipur and could not stay away from Mumbais shiny life style. After coming to Mumbai Harshad Mehta joined his 1st job as dispatch clerk in the New India Assurance Company. But his 1st love is always Stock market. Harshad Mehtas first love was stock exchange. During his work at new indiai ns uranc e he has started investing in stock market with his brother Ashwin Mehta. And after sometimes he has managed to get BSE brokers card. Who knows at that time that it was starting of great Indian scam!! Growth period of Big Bull: EXPLOITING THE LOOPHOLE IN THE BANKING SYSTEM After investing in stock exchange Harshad Mehta found some wrong patterN on trades in stock exchange. He found that companies are not rising and falling as over their fundamentals, and he started manipulating HOW IT WAS DONE AND THE ROLE OF THE BROKER

He started manipulatingone stock namedA CCIt

was rising , rising and rising only. But Harshad Mehta had reason for all the questions for its rising. Its Replacement Price Theory. He was successful in explaining this theory to Indian public.

But the fact had another side too. Mr Mehta started buying this ACC at mid 1990 and then he made it public. It was Harshad Mehtas trademarked style:1 He used to study fundamentals, 2 he used to buy in big quantity and 3 then he used to make it public. And demand of thatst ock used to rise like anything after recommendation of this Big Bull !! Market at Harshad Mehta scam
Graph

Boom Period of Big Bulls life: Year 1991. Mr Harshad Mehta is now darling of Indian media. He was dream seller. He was not only Harshad Mehta now.. but he was The Harshad Mehta. Boss of Growmore Research and Asset Management . People know this personality as The Big Bull of Indian stock exchange. Harshad Mehta thought different then others. The basic concept behind his view was very optimistic and somehow it was good

for Indian money market too. He used to explain people that if fundamental of some company is good it should go up and should always goes up. But excess of anything is evil. The dream of great Indian story was becoming greed generator for Indian public and for Mr Harshad Mehta too. At his peak, he lived almost like a celebrity in a 15,000 sq ft house, which had a swimming pool ,beautiful golf patch. He also had a crush for flashy luxurious cars and no wonder he used to have some of the best car of 1990s in his huge parking. Recession Period in Big Bulls life: His flashy life and charismatic personality was a problem for many Indian and international personalities. In 1992, 1st article came out against this dream merchant and the story was about 600+ Crores rupees scam !! it was written in article that Harshad Mehta had swiped 600 Crores. rupees from SBI. No one had clue at that time that it was starting of the most dramatic scam of Indian stock exchange. But fact was unknown till now . the amount is much more than what was said in that news article. As per that article Mr Harshad Mehta used Ready Forward Deal for this scam. As per this deal he used to take some short term loan from

banks and used this money in stock exchange to rise the price is the security. Pure manipulation. As per Indian law it was not allowed to give such RF loan to any individual person by bank. So it was clear that more than one banks were involved in this scam. With this money mr Harshad Mehta used to make waves in Indian stock exchange. He was using this banks illegally to manipulate the stock exchange mechanism. He used the money he borrowed from lending bank on behalf of borrowing bank. And he invested that money in stock market. in this process the borrowing and lending banks knows only broker and may not know the name of the other party. And Harshad Mehta used this fact very well for his own personal benefit. Depression of Big Bulls life: Mr Harshad Mehta had one habit of showing off. Larger than life kind of personality can make the worst enemies for you. When he came to know this truth it was too late. When he got some finest luxuriousc ar of the world and he was giving some picture pose of him feeding bears in zoo, some big names like Anand Rathi and Krishnakant Damani were hurt badly it was not a good news for the big bull. Whole bear cartel is against Harshad Mehta now. Everyone knew that Harshad Mehta is

getting money from somewhere. but from where? The bear cartel has exposed the truth behind the constant rise of this big bull. They have used almost all the resources they have. It was surprising to point out here that even this bear cartel was using same technique as Harshad Mehta used. But the difference was , public appearance. Bears cartel used the money from overseasbank s where as Harshad Mehta used Indian banks for his growth. And this act was crime as per Indian law books. And on one not so fine day it was headline of Indian news paper regarding 4000 crore rupees scam in Indian stock market. Now Harshad Mehta was in trouble. As the scam was exposed the banks receipts (BR) value became almost zero. And it was enough reason for crash of some financial institutes which would lead Indian financial crises. Bear cartel was behind Harshad Mehta now. They filed as many cases as hey can against Harshad Mehta . They have used all their sources and made sure that Harshad Mehta would not get any bail. Indian Stock Market crashed like anything. It was one of the worst time Indian market have seen till day. Indian public faced tough times. Many suicidal notes were found near dead bodies of Indian stock traders. The

big bull, The dream merchant, The Harshad Mehta is now The most hated person!! 4000 crore scam ,many financial firms were involved, many political parties were involved, many big names involved in the same case, but surprisingly only one man was trapped. Harshad Mehta. End of The Big Bull: Late 2001, place : Thane jail. The jail superintendent came to know about end of the bull era with news of Harshad Mehtas death. Reason was heart attack. But it was shocking to know that before he died, he

was proved innocent in all other cases against him, and found guilty in only one case..!!! That is how it happened. The chair person of Growmore Research and Asset Management died. And one Bull Run came to end. Moral of the Article : Caution: stock marketi nves tm ent is subject to market risk. Please read the offerdoc um ent carefully before investing.