Harshad Mehtacapital market

scam

Overview

Capital market Capital market scam Harshad Mehta

Capital marketThe 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 markets included 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.

 Who is this man?Harhad Mehta-story

Started his career with new India assurance co.Quit his job in 1981 to become a sub- broker.Went bankrupt in 1982 & recovered soon to become more stronger.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 ?

Diversion of fundsUse of ready forward(RF)to maintain SLR (statutory liquidity ratio)Creative accountingIntra-day trading

Explain the loophole in the banking system

He targeted a rise in the Bombay stock exchange in the year 1992 by trading in shares at a premium across many segments.Taking advantages of the loopholes in the banking system, harshad and his associates triggered a securities scam diverting funds to the tune of Rs 4000 crore (Rs 40 billion) from the banks to stockbrokers April 1991 to May 1992.

How it was done & role of the broker ?

Mehta soon mastered the tricks of the trade by managing several brokers and set out on dangerous game plan. Mehta has siphoned off huge sums of money from several banks and millions of investors were conned in the process. His scam was exposed, the markets crashed and he was arrested and banned for life from trading in the stock markets.

Major culprits-brokers, bankers, financial institutions, bureaucrats, etc.

He was later charged with 72 criminal offences. A special court also sentenced sudhir Mehta, harshad Mehta’s brother, and six other, including four bank officials, to rigorous imprisonment(RI) ranging from 1 year to 10 years on the charge of duping state bank of India to the tune of Rs 600 crore (Rs 6 billion) in connection with the securities scam that rocked the financial markets in 1992. He died in 2002 with many litigations still pending against him.

His favorite stocks included

AccApollo tyresRelianceTata iron and steel co.(TISCO)BPLSterliteVideocon.

The end of the bull story

Lifestyle (flashy cars & life like a celebrity).31st December 2001- the death of the bull.Forever remembered as the architect of the Rs. 50 billion scam.