Briefly details about harsad Mehta scam

1. HARSHAD MEHTA
SCAM 1992
GROUP - 3

2. INTRODUCTION OF THE SCAM:
 Name: Harshad Shantilal Mehta
 Born on 29th July 1954
 Died on 31st December 2001
 Profession: Stockbroker
 He earned his degree in Bachelor of Commerce
 He started working as an employee of the New India
Assurance Company

3.  In the early eighties he quit his job and sought a job
with stock broker P. Ambalal affiliated to Bombay
Stock Exchange.
 He became a jobber with BSE for stock broker P.D.
Shukla.
 In 1981 he became a sub-broker for stock brokers J.L.
Shah and Nandalal Sheth.
 He triggered SENSEX in 1992 & made the scam by
diverting funds of Rs.4,000 crore.
 For instance, price of ACC rose from Rs. 200 to Rs.
9000.

4. EXPOSURE OF THE
SCAM
 On 23rd April 1992, journalist
Sucheta Dalal exposed Mehta's
scam.
 She was a columnist in The Times Of
India.
 On 23rd April 1992, the Times of
India first reported that Rs. 500 crore
had been credited to Harshad
Mehta’s account due to a missing
SGL (Securities General Ledger)
receipt, the man at the center of it all
was R Sitaraman, the manager.

5. Instruments
used by
Harshad
Mehta
Ready Forward Deal
Bank Receipts

6. Ready
Forward Deal
A secured short-term
(typically 15-day) loan
from one bank to another.
Bank lends against
government securities.
A broker usually brings
together two banks for
which he is paid a
commission.
The securities and
payments were delivered
through the broker in the
settlement process.
In such settlement the
banks may not know with
whom they are dealing.

7. Bank Receipts
(BR)
 In a RF deal securities were not moved back and
forth in actuality.
 The borrower, i.e. the seller of securities, gave the
buyer of the securities a Bank Receipt.
 Bank receipts serve three functions:
1) Confirms the sale of securities
2) States that the securities are held by the seller in
trust for the buyer
3) Acts as a receipt for the received money by the
selling bank.
 In this scam Bank of Karad & Metropolitan Co-
operative Bank had issued fake BR.

8. Modus Operandi

9. Impact of Scam on market
It triggered the biggest fall in the stock market at that
time (fall of 12.77%)

10. Impact on
others
Mehta had by then swindled the banks of a staggering Rs
4,000 crore.
SEBI was made into a statutory body.
Holding banks of fake BR had to face losses.
BR was removed by RBI.
The chairman of the Vijaya Bank committed suicide over

11. Regulatory actions
against Mehta
 He was later charged with 72
criminal offenses, and more than
600 civil action suits were filed
against him.
 He was arrested and banished
from the stock market.
 Mehta and his brothers were
arrested by the CBI on November
9, 1992 for allegedly
misappropriating more than 27
lakh shares of about 90
companies.

12. Learnings for
future
Loopholes in banking sector need to be corrected as
it has been exploited time to time (PNB, etc.)
Financial ambitions shouldn't turn into greed.
Lesson learnt from the people who lost money.

13. THANK YOU