This is a presentation on "Satyam Computers Scam and Harshad Mehta Scam"

1. (i)Satyam Computers
Scam
(ii)Harshad Mehta
Scam
Presented By
Mohit
M.Com(F)
180101030009

3. What was the Satyam scam?
 Satyam Scam was the big corporate scam that occurred
in India in 2009.
 It is also regarded as “Debacle of the Indian Financial
System”
 The case of Satyam is often referred to as "India's
Enron"(Enron was a US based company which was
inflicted with a similar accounting fraud).
 It was a 7,136 crore (nearly $1.5 billion) Fraud and it is
seen as India's Most Colossal Financial Fraud.
 The fraud shows how disastrously investors can lose
money by simply misstating the figures in the Balance
Sheet.
 Ironically, Satyam means “truth” in Sanskrit, but Raju’s

4. History of Satyam Computers
 IT Company name Satyam Computers was
started by Ramalinga Raju and his brother in law
in 1987.
 Raju was Harvard Graduate and an impressive
personality.
 Satyam was Hyderabad based company.
 In 1991-92 Satyam computers was listed on BSE
(Bombay Stock Exchange) and in 2001 it was
listed on NYSE (New York Stock Exchange).
 Satyam Computers was one of the fastest
growing company of India and hence Satyam
Computers as well as Ramalinga Raju received
many awards during its growth years

5. How did Raju do this scam?
•During the same period the Real Estate was on Boom and hence Raju was
attracted towards real estate market. The property rates in Hyderabad was
growing rapidly so Raju aggressively started buying the land properties in
Hyderabad and nearby areas.
•Due to aggressive buying of properties Raju was in short of funds (money)
hence to generate more funds he started to manipulate the financial statements
of Satyam Computers.
•For example, If Satyam had the actual profit of Rs60 crores then in financial
statements Raju used to show the profit of Rs600 crores so as to show that
Satyam is growing very rapidly.
•Due to this fake rapid growth and fake strong financials the price of share of
Satyam was growing rapidly. Raju and his brother was selling the shares of
Satyam on this high price so as to raise the money to buy properties.
•Raju opened 365 new companies to buy the properties. He used to buy the
properties under the name of his family members, relatives, friends etc. Raju
used to make his farm workers (whose monthly income was not more than
Rs5000) the Directors of his newly opened companies and used to buy the
properties under their name

6. What was Raju’s plan
 Raju plan was that the rates of the properties
will grow in multiples after some time, after that
he will sell those properties and from the
money earned, he will balanced the gap that
he has created in financial statements of
Satyam

7. •Because of manipulating the financial statements of Satyam as well as showing the
fake rapid growth for years, the price of share of Satyam was growing very rapidly.
•Taking advantage of this, the promoters of Satyam used to sell those shares on high
price to earn profit.
•In 1999 the promoters of Satyam hold 24% of shares, while in 2008 it was reduced to
2%.
•As the days were passing the gap between the actual figures and fake figures was
increasing resulting into a huge amount.
•Due to recession in 2008, the rates of properties decreased drastically and Raju’s plan
of selling properties at high rates failed.
•Raju was in great trouble and to escape from this he made a new plan. According to
this new plan, Satyam will buy the two companies that is Maytas properties and Maytas
Infra (both companies of Raju’s family members). They will buy the companies on paper
but in real there will be no cash transactions so as to balance the fake figures and actual
figures in accounts of Satyam.
•Satyam’s board of directors approved the plan 16th Dec 2008 and without taking the
permission of Share Holders, Raju sanctioned the deal.
•But investors of Satyam were not happy and due to this price of stock of Satyam
decreased.
•One investor from U.S filed Lawsuit on Satyam due to which the price of Satyam was
decreased by almost 55% on NYSE.
•Due to increasing pressure of investors on Raju, he cancelled the plan of buying
Maytas Infra and Maytas properties.
•This was last chance for Raju to fill the gap between actual and fake figures of Satyam
and stop this scam for revealing, but seeing it failed, on 7th Jan 2009 he confessed to

8. •After this scam, government appointed new Board of Directors on Satyam.
•In April 2009 Tech Mahindra purchased the 51% shares of Satyam Computers and
named it Mahindra Satyam.
•Finally in June 2013, Mahindra Satyam merged in Tech Mahindra.
•Before this scam was revealed, Satyam was recognized as 4th largest IT Company of
INDIA and usually tagged as “IT Crown Jewel of INDIA”. Satyam’s stocks were included
in Sensex and Nifty but were removed on 9th Jan 2009.
•After scam was revealed, Satyam’s stock decreased from Rs170 to Rs6.50 due to
which its investors suffered the loss of almost Rs14162 crores. LIC was institutional
investor in Satyam and suffered the huge loss of Rs950 crores.
•The meaning of word Satyam in Sanskrit is ‘Truth’. But there was no truth in operations
of Satyam. To earn the money Raju did many illegal activities like Money Laundering,
Insider Trading and Accounting fraud due to which many common investors of Satyam
suffered a lot.

9. What can we learn from this
scam?
 There is one thing for us to learn from this
scam, that if promoters of any company are
selling their shares then always check why
they are doing so and mostly do not invest in
such companies.

11. Introduction of Harshad Mehta
 Harshad Mehta was an Indian Stock broker and was
known as the big bull of Dalal Street.
 He was born on 29th of July 1954 in a poor family in
Rajkot District in Gujarat. His father was peon. He
migrated to Mumbai with just Rs40 in his pocket.
 In 1976 he somehow managed to complete his
graduation in commerce from Lala Lajpat Rai College,
Mumbai.
 After completing his graduation, he worked in some
companies for couple of years
 While working as a sales person in New India Assurance
Company Ltd. he developed the interest in Share Market
and hence after quitting his job in early 1980’s, he joined
the Stock broker B.Ambalal.

12. Contd….
 Later 1981 he worked as sub-broker to stock broker
J.L.Shah and Nandalal Sheth.
 After gaining ample of experience, in 1984 he with his
brother, started his own firm named as Grow More
Research and Asset Management.
 Later, he became the member of Bombay Stock
Exchange as a broker.
 In 1986, He started trading actively.
 By early 1990, he became a famous stock broker and a
number of eminent people began to invest in his firm,
and utilize his services including the then minister
P.Chidambaram.

13. Harshad Mehta mainly used two
instruments in scam:
1. Ready Forward Deal (RF Deal).
2. Bank Receipt (BR).
 Harshad Mehta used technique of the RF Deal
or Ready Forward Deal in scam. Ready
Forward deal was the short term loan
instruments for bank. To know what RF deal
is first we will see what government securities
are

14. Government Securities:-
Basically Government Issue’s securities to cover its expenses of various
project. They are called as Government Securities. Bond is an example of
government securities. In bond, the government raises the fund to cover its
expenses, and in return, pay the interest to investors who have invested in
these bond. It was mandatory for all banks to invest in this government
securities in those days.
In 1990’s, if any bank was in short of funds (money) then to generate funds, it
used to sell its bond or securities to other bank and in return after some days
would pay some interest with capital to regain its bond.
Ready Forward deal:-
one bank would give the short-term loan to other bank and keep government
bonds of that bank as collateral.
In ready forward deal brokers used to work as mediators between two banks.
Brokers work was to find the buyers for banks, willing to sell their securities or
bonds and vice-versa find sellers for the banks which are ready to buy the
securities.
In such settlement bank may not know with whom they are dealing.
Harshad Mehta was the broker, and used to work as mediator between two
banks.

15. Loopholes in the system of RF
Deal
 There were some loopholes in this system of RF Deal
using which the broker could make ample of illegal
money.
 Harshad was very well known with this loopholes and
using this loopholes, he made the biggest scam in
history of stock market. We will see with an example
how he did it.

16. Example:
• there are four banks A, B, C, and D. Harshad worked as a broker between these
banks.
•If bank A wants to sell its securities to generate the fund, so it approached to Harshad
and ask to find a buyer. Harshad would take the bonds from bank A and ask the bank to
give him some time to find the buyer. In the same way if Bank B wants to buy the
securities then same like above Harshad would take the money from bank B and ask for
some time to find the seller.
• According to guidelines of RBI, if one bank is selling their securities to other then the
other bank should issue the check in the name of bank who is selling their securities and
not in the name of broker. But in this case, banks directly used to issue the check in the
name of Harshad Mehta (since in those days he was a famous broker with good name).
Banks used to deal directly with Harshad, which was illegal.
•Harshad used the money taken from bank B to manipulate the stock market.
•Now after some time if bank A would ask for the money against their bond or security
then Harshad used to go to bank C. Take money from it, ask for some time to give them
the security or bond against money and give that money to bank A. In the same way he
took money (funds) from many banks and used it to manipulate the stock market. Hence
Harshad used the RF Deal like a chain system, he took money and bonds from many
banks due to which he always had ample of money in his hands

17. Bank Receipt (BR)
 In Ready Forward deal when any bank used to sell its
securities to another bank, then as a collateral first bank
used to give a receipt to buyer bank and not the actual
bond or securities. This receipt was called as Bank
Receipt (BR)
 BR was the symbol of confirmation that selling bank has
got the money while buying bank has got the securities.
 Harshad crossed all the limits when he started printing
the fake Bank Receipts (BR), and took the money from
banks in return to this fake receipts

18. •Harshad used this money to invest in stock market due to which the price of many stock
increased drastically.
•The share price of ACC went to Rs9000 from Rs200 in just few months. Due to this
increasing prices, people started investing in share market and hence prices of stocks
went to peak. Harshad used to sell his shares when market went at peak and earned
good profits.
•From this earned profits he used to return the money of banks and recollect his fake
receipt.
•This all went on continuation until the market was bullish and prices of shares were
increasing.
•After some time when the market went bearish the prices of stocks started decreasing.
•Harshad suffered huge losses due to this bearish market and lost all his money due to
which he was unable to return the money of banks.
•On 23rd April 1992, journalist Sucheta Dalal exposed the Harshad Mehta scam in the
journal of TOI.
•After this the bank’s realised that the receipts (BR) which they have received from
Harshad are fake and has absolutely no value.
•Due to Harshad Mehta Scam, banking system suffered the huge loss of almost Rs4000
crores.
•As soon as this scam was exposed, stock market crashed drastically. Due to this many
investors lost huge money and went bankrupt.
•The chairman of Vijaya Bank, who had issued the checks in name of Harshad Mehta,
realised that the BR receipts given by Harshad Mehta are fake and hence committed
suicide immediately after scam was exposed due to depression.
• CBI arrested Harshad Mehta on 9th Nov 1992 and filed him with 600 Civil Action Suits

20. References
 https://www.quora.com/What-was-the-modus-
operandi-of-the-Harshad-Mehta-scam
 http://www.forbesindia.com/article/independen
ce-day-special/economic-milestone-stock-
market-scam-(1992)/38457/1
 https://www.hindustantimes.com/business/saty
am-scam-all-you-need-to-know-about-india-s-
biggest-accounting-fraud/story-
YTfHTZy9K6NvsW8PxIEEYL.html