This presentation is on India's two biggest scams in Stock market.

1. असर (ASR)

2. Capital Market ?
Capital Market is a market where buyers and sellers engage
in trade of financial securities like bonds, stocks etc. The
buying/selling is undertaken by participants such as
individuals and institution.
What is Capital Market Scam?
It is basically the fraud done in the capital
market with the investors by manipulating
the facts in order to attain enormous profit.

3. Harshad Mehta
 Name: Harshad Shantilal Mehta
 Born in: 29 July 1953
 Died in: 31 December 2001
 Profession: Stockbroker
 He earned degree in Bachelor of Commerce.
 Started his career with New India Assurance Co.
 He quit his job in 1981 and become a sub-broker.
 He took advantages of loopholes in banking system.
 He triggered SENSEX in 1992 to & made the scam by diverting funds
of Rs. 4000 crore.
 Went on to become one of the most successful broker- The Rags to
Riches Story, thereby earning the nickname of “THE BIG BULL”
 Forever remembered as the Architect of Rs. 50 billion Scam.

4. What were the Instruments
used in Scam?
 Mehta had used 2 instruments in this
scam
1. Use of Ready Forward (RF) to maintain
SLR (Statutory Liquidity Ratio)
2. Bank Receipts
Stocks list of
Companies in Scam
1. ACC
2. Apollo Tyres
3. Reliance
4. Tata Iron and Steal Co. (TISCO)
5. BPL
6. Sterlite
7. Videocon
Exposer
 On April 23, 1992, journalist Sucheta
Dalal exposed Mehta’s scam
 She was columnist in Times of India
Sucheta Dalal

5. Ready Forward Deal
 A secured short-term (typically 15-days) 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
The process of RF
 Settlement Process
1) Delivery of Securities
 Payment of Cheques
1) Crossed account Payee
2) Cheques in his name (forbidden by law)
 Dispensing of securities
Seller Broker Buyer

6. Bank Receipts
 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.
 Bank receipts serve three functions
1. Confirm 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.

7. Ketan Parekh
 Ketan Parekh is a former stock broker from Mumbai,
Popularly known as “BOMBAY BULL”.
 KP arrested on 30 March 2001 for the security market scam
known as Ketan Parekh Scam.
 He was convicted in 2008, for involvement in the Indian
stock market manipulation scam in late 1999-2001.
 Currently he has been debarred from trading in the Indian
stock exchanges till 2017.
 He was trainee of Harshad Mehta.
 He was CA from profession and comes from broking
family background.
 Known for his K-10 series of stocks.

8.  Formed a network of brokers.
 Indentified and targeted 10 stocks.
How it happened ?
Funding Mechanism
 Simple borrowing Mechanism
 Badla System
The K-10 Stocks
1. HFCL
2. SSI Ltd.
3. Zee Telefims
4. Aftek Infosys
5. DSQ Software
6. PentaMedia Graphics
7. Silverline Technology
8. Global Telesystems (Global)
9. Pritish Nandy Communication
10. Himachal Futuristic Communication

9. How it was detected ?
 Stock market crash of 2000
• KP started borrowing heavily
• Attempted to rig the price
upwards and later sell.
• But failed to do so.
 IT department found discrepancies
in source of funds of KP.
 Routine market surveillance of 5
stocks.

10. Trading Mechanism
Harshad Mehta Ketan Parekh
TRADER
D
TRADER
B
TRADER
A
STOCK
PRICE
Price rigging
Lender
Bank
Borrower
Bank
Funds
Issue fake
BR
D
O
W
N
U
P

11. The Impact of these Scams
Harshad Mehta Ketan Parekh
1. Mehta had by then swindled
the banks of a staggering Rs.
4000 crore.
2. Stay on liberalization
3. Holding banks of fake BR had
to face losses
4. BR was removed by RBI
5. The chairman of Vijaya Bank
committed suicide.
1. Ketan Parekh was threatening
to sue the Bank of India for
defamation because it
complained of bouncing of
1.3 billion pay orders issued
to the broker by Madhavpura
Mercantile Cooperative Bank
2. Investigations by SEBI and
CBI reveal that sheer
magnitude of money moved
by Parekh was a staggering
64 billion

12. Action taken against
Harshad Mehta Ketan Parekh
 He was later charged with 72
criminal offences, and more than
600 civil action suits were filled
against him.
 He was arrested and banished
from the stock market.
 Mehta and his brothers were
arrested by the CBI on 9
November, 1992 for allegedly
misappropriating more than 27
lakh shares of about 90
companies.
 SEBI launched immediate
investigation on the scam.
 It suspended all the broker
member directors of BSE’s
governing board.
 SEBI also banned trading by all
stock exchanges presidents, vice
presidents and treasurers.
 SEBI banned naked short sales.
 RBI started inspecting accounts
and sub-accounts twice a year in
spite of once in two year.
 SEBI allowed banks for
collateralized lending only
through BSE and NSE.

13. Comparative Analysis of both Scams
1. Self made man.
2. Media Savvy
3. Instruments misused were Ready Forward
Deal and Bank Receipts
4. Operated through close network of brokers
5. Foreign banks like Citibank, Standard
chartered and ANZ Grindlays were involved
6. SBI suffered Rs.600 cr. loss
7. Played with Old Economy stocks
1. From Stock-brokers family
2. Shield away from media
3. Instruments misused were Pay Order and
Circular Trading
4. Had wider network of brokers
5. Credit Suisse, First Boston and JM Morgan
Stanley were involved
6. Bank of India suffered Rs.130 cr. loss
7. Played with New Economy stocks
HarshadMehta
KetanParekh
8. Used to buy stocks at rock bottom prices and then push it up.
9. Banks involved in the scam.
10. Promoters of the company were involved.
11. Scam occurred inspite of presence of SEBI.

14. Conclusion
Both were brave stock broker. They
knew the loopholes in banking system as
well as how to exploit that loopholes.
There whole intention to do this was to
rise in SENSEX.