The Harshad Mehta Scam Exposed. The entire mechanism and who were the key parties involved, the aftermath and the effects of the scam on the stock market and the overall Indian Economy. The ethical issues involved and the action taken to prevent any such scams in the future by the government.
2. THE INDIAN STOCK MARKET
& the Banking Sector: Home of the “Big Bull”
Stock Market
Lists the Indian companies on stock
and trade shares.
Banking Sector
Gives loans, accept people’s
deposits and regulate government
accounts.
POLICY- Every bank is supposed
to invest certain amount in
government securities/bonds at
the end of everyday.
Scam referred to as the
‘Technology security stock
scam”
3. HARSHAD MEHTA
“From rags to riches”
Born: July 1954 to a Gujarati
family of modest means
Father: small time businessman in
Mumbai
Family shifts to Raipur, Mehta
returns to Bombay, City of Dreams
after completing education
Started as Dispatch Clerk for New
India Assurance
Keen interest in the Stock Market
Quits job in early 80s, becomes
sub- broker for Shah & Sheth
Starts investing heavily in Stock
Market after being mentored by
Shah & Sheth
4. “I thought I’d be like Pied Piper”
1987: Starts GrowMore
Research & Asset Management
along with brother Ashwin
HARSHAD MEHTA
On the rise
Gets multiple stock exchange
memberships
“Charismatic, recklessly
ambitious” ,role model for
investors
Makes waves in Stock Market:
Replacement Cost Theory
Darling of Business Media,
earns name of “Big Bull”
Flamboyant and flashy lifestyle
Lives like a movie star:
15,000sq ft house, swimming
pool, golf patch
Taste for flashy cars leads to
ultimate downfall
5. Issued cheque
favoring HM on
Day 1
Issued cheque
favoring HM on
Day 2
Issued Govt
Bonds taken
from Bank B
Issued Govt
Bonds taken
from Bank C
Sold Govt Bonds
on Day 2
Sold Govt Bonds
on Day 1
Promised to pay on
Day 3 & presented
fake BRs
Promised to pay
on Day 2 &
presented fake BRs
Repaid money
taken from
Bank D on Day 2
Issued
fake BRs
Excess funds
channelized towards
buying stocks
HARSHAD MEHTA
(Broker)
BANK A
BANK C
BANK B
STOCK MARKET
BANK X
BANK D
MEHTA’S TRADE MECHANISMBuyerofsecurities
Sellerofsecurities
6. Who was involved?
the who’s who
Harshad Mehta
The Indian Government
Bank of Karad, Mumbai
Metropolitan Co-operative Bank (MCB)
- both the banks issued fake BRs.
Associated cement company (ACC)
8. Charged with 72 criminal offences
More than 600 civil action suits
were filed against him.
Convicted in September 1999:
5 years of rigorous imprisonment
and a fine of RS 25,000
HARSHAD MEHTA
The End of an Era
Arrested on 9th November,
1992 : Misappropriating
2.8million shares of 90
companies
Scam value as per 1990s:
Rs4000cr
Allegation of bribe to PM of India
Value as per 2011
9. “JUSTICE OR FARCE?”
Rs. 6170 crore have been
recovered and payments
been made to major
claimants like SBI and the
Income Tax Department
270 cases still pending
Junior bankers at SBI and
UCO sentenced to rigorous
imprisonment;
Many left bankrupt, commit
suicide
Then Prime Minister P.V.
Narsimha Rao and other
politicians allegedly
associated with the scam
remained totally unaffected
?
10. Sharp fall in share prices.
Genuine investors were
being suddenly robbed by
the government as their
shares became worthless
pieces of paper.
The governments
liberalization policies came
under serious criticism.
Foreign mutual funds
became more remote than
ever.
Euro issues planned by
many companies has to be
re-evaluated.
Concept of Bank Receipt
finally removed
The Aftermath
impact of the scam
Editor's Notes
From being rusticated in school to being the uncrowned Sultan of Dalal Street
The theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company.
The cost to replace the assets of a company or a property of the same or equal value. The replacement cost asset of a company could be a building, stocks, accounts receivable or liens. This cost can change depending on changes in market value.
Also referred to as the price that will have to be paid to replace an existing asset with a similar asset.