Stock market scam by harshad mehta

1. CONTINUOUS INTERNAL ASSESSMENT- 1A

2. AKSHAT
MISHRA
21211408
SPARSH
JAIN
21211469
SHRESTEE
AGARWAL
21211468
RUCHIKA
YADAV
21211458
ANIKA
CHOWFLA
21211415
PRESENTATION BY-

4. Mehta was convicted by the Bombay High Court and the Supreme Court of India for
his part in a financial scandal valued at ₹100 billion (US$1.3 billion) which took place
on the Bombay Stock Exchange (BSE). The scandal exposed the loopholes in the
Indian banking system and the Bombay Stock Exchange (BSE) transaction system,
and consequently the SEBI introduced new rules to cover those loopholes. He was on
trial for 9 years, until he died at the end of 2001.
It was alleged that HARSHAD engaged in a massive stock manipulation scheme
financed by worthless bank receipts, which his firm brokered for "ready forward"
transactions between banks.
Harshad Shantilal Mehta (29 July 1954-31 December 2001) was an Indian
stockbroker.His involvement in the 1992 Indian securities scam made him
infamous as a market manipulator

5. HARSHAD
MEHTA

6. 3 MAIN THEMES IN
HARSHAD MEHTA CASE
It is the illegal process of
making large amounts of
money generated by a
criminal activity.
Harshad Mehta
fraudulently laundered
over Rs 24,000 crore in
the stock market over a
three-year period.
MONEY LAUNDERING
Financial fraud happens
when someone deprives
you of your money or
harms your financial
health through misleading
or deceptive ways.
He created a vicious
cycle of fraud involving
big names such as the
State Bank of India (SBI)
and the National Housing
Bank (NHB).
Employment exploitation
refers to situations where
an employee either
voluntarily or through
coercion, is working in
sub-par conditions.
Ravikumar and Suresh
babu of NHB and SBI
were bribed by Harshad
who transferred the
money to Harshad's
personal account by
showing fake BRs.
EMPLOYEE
EXPLOITATION
THEFTS AND
ACCOUNTING FRAUDS

7. Unethical comes from the word “which means
conforming to accepted standards of social
or professional behaviour.
Unethical in the other hands, are the opposite
meaning of ethical which means not conforming to
approved standards of social or professional
behaviour that is the “unethical business practice”.
It is a wrong contrary to conscience or moral
or law; For example “ it is wrong for the rich to
take advantages of the poor.
UNETHICAL ISSUES

8. UNETHICAL ISSUE OF THE
SCAM 1992 BY HARSHAD MEHTA
Any company's ethical climate is determined by: Individually, one's
perception of values is as follows: When enormous sums of money are
involved, a person's behaviour is often controlled by greed, and as a result,
unethical societal values are accepted in the industry, i.e., unethical
activities are regarded as the standard. For example, during the Harshad
Mehta Scam, it was stated that bank receipts were the standard and thus
that utilising them was not immoral, despite the fact that they were one of
the main causes of the scam. The third and most critical factor is that
India's corporate governance structures are lacking. The aforementioned
two points, as well as ital, combine to form corporate governance.the
outcome of the government's governance system We can't have effective
corporate governance if public governance isn't strong. Corporates get
away with a slew of scams, from Harshad Mehta to Ketan Parekh. Bankers
and brokers should be imprisoned. After all, they are the ones who pay the
bills. Harshad Mehta's swindle was discovered by Sucheta Dalal

9. 1. Government manipulation- As government duty is-Devotion to the
highest moral ideals and to the country should take precedence above
loyalty to individuals, political parties, or government departments.
In Harshad Mehta case the government knew about the transferring of
illegal bonds and securities being bought without signing the bond at low
rates so they know about it and forget their code which needs to be
followed.
2. Unethical accounting- Poor accounting ethics not only enhance the
likelihood of illegal activity, but they also impair the company's reputation
(goodwill) and render their financial statements untrustworthy and hence
useless.
The accountancy of Harshad Mehta department has illegally transferred
money to many people account so that they cannot be found guilty in any
tax evasion

10. 3. Bonds manipulation- it involves the literal
manipulation of a financial market for personal
gain. It means influencing the behavior of the
securities with the intent to do so.
When Harshad Mehta bought the securities of
SBI he did not show the transfer of bond in his
account or do the entries hence resulting in the
evasion of securities and manipulation of bank
ethics. Bonds were fakely issued by the help of
an employee of the bank.

11. Securities Scam of 1992-
Harshad Mehta, like many financial journalists who covered the scam recall, successfully
manipulated stocks by illegally obtaining money from several banks using forged bank receipts.
He set in motion a vicious cycle of fraud involving major institutions such as the State Bank of
India (SBI) and the National Housing Bank (NHB). The 1992 securities scam, worth nearly Rs
4,000 crore - well over Rs 20,000 crore today when adjusted for inflation - resulted in profound
changes in the stock market. Stricter laws were enacted in order to expand the Sebi's regulatory
powers. But that was only one part of the ruse. Mehta had also exploited gaps in the country's
banking sector, some of which still exist today.
How 'Big Bull' Mehta defrauded banks
Harshad Mehta's downfall began when it was revealed that SBI had Rs 500 crore missing from its
books in the form of Subsidiary General Ledger (SGL) at the RBI's public debt office.In1980 he
made relation with bank.Mehta like many other brokers at the time, had taken advantage of a
"shortcut" used by banks when dealing in government securities. Harshad Mehta acted as a broker
for a number of banks interested in dealing in government securities. It should be noted that
Harshad Mehta collaborated with officials from the Bank of Karad and the Metropolitan
Cooperative Bank to obtain forged bank receipts. Mehta made use of these bogus banks receipts
to withdraw funds from banks; the funds were then transferred to the stock market.
UNETHICAL INCIDENTS

12. What
Irresponsibilities
caused Mehta that
lid off his scandal?

15. Could Harshad have
resolved the problem with
SBI, without the RBI
pinning him down?

18. IMPACT OF STAKEHOLDERS DUE TO HARSHAD
MEHTA SCAM
•The Harshad Mehta scam triggered many changes
in India's financial regulatory system. The Securities
Laws (Amendments) Act was passed in 1995,widening
Sebi's jurisdiction and allowing it to regulate depositories
FIIs, venture capital funds and credit-rating agencies.
•Mehta allegedly colluded with bank employees to get
fake bank receipts (BRs) issued. He used these BRs to
get other banks to lend him money under the impression
that they were lending against government securities. He
created a vicious cycle of fraud involving big names such
as State Bank of India and the National Housing Bank.

19. •In the early 90's, banks in India were not allowed to
invest in the equity markets. However, they were
expected to post profits and to retain a certain ratio
of their assets in government fixed interest bonds.
• Mehta squeezed capital out of the banking system to
address this requirement of banks and pumped this
money into the share market. He promised the banks
higher rates of interest, while asking them to transfer
the money into his personal account, under the guise
of buying securities for them from other banks.
BANK

20. •In 1992,there was no rule over maintenance of minimum
balance that a customer needs to ensure to buy stocks.
Now, a customer can’t buy stocks without the minimum
balance in the account or sell without stocks in their
Demat account. And customers have to pay at least one
percent as brokerage for equity delivery trades.
•Response of the government, the government was under
immense pressure from media and opposition to take
concrete steps to bring justice to the people and also
to ensure that the loopholes in the system which caused
such scam were closed so that scam would not recur.
GOVERNEMENT

21. •As a first step by the government, the case was handed
over to central bureau of investigation and the joint
parliamentary committee. Then a special court was set
up to facilitate speedy trial. The special court declared
an ordinance for the attached the properties of all the
individuals accused in the scam.
•Further, all transactions done by the accused after the
March 31,1991 were considered void. To reform the
system further, the government banned RF deals and
slowed down the liberalization process.
JUDICIAL SYSTEM

22. •The Indian stock market has come a long way since the scam.
Over the years, there have been other stock market scams that
have cleaned out investors and left regulatory bodies red-faced.
But Mehta was the one who started it all. The events that he
scripted continue to serve as a reminder to both investors and
regulators to remain vigilant at all times.
INVESTORS

24. The scam made by Harshad Mehta provide us huge lessons to learn
● Having Confidence is must to succeed
● There is nothing to worry about if you fail in the beginning
● Greed digs its own grave
● People generally make mistake when guided by emotions
Changes took place after the scam
● The Securities and Exchange Board of India( SEBI) to regulate depositories, FIIs, venture capital funds, and credit
rating agencies.
● Settlement cycle was reduced from 14 days to a 2 days process.
● Minimum Balance is must.
● All transactions are electronic and all settlement of trades happens through clearing corporations.

25. CONCLUSION
• Despite the scam, Harshad Mehta is still looked up to in certain circles, As reported by Economic Times
some financial experts believe that Harshad Mehta did not commit any fraud, “he simply exploited
loopholes in the system”.
• The Harshad Mehta scam can be looked at from two sides. The first is a scam where Harshad looted the
stock market and the public or the second way where Harshad Mehta was made the scapegoat as
someone had to be blamed and at the same time kept other influential people away from the limelight
• Some of the regulatory actions SEBI undertook came under scathing criticism from some quarters who
accused it of still being clueless about its supervisory duties. Observer said the regulator still continued
believing that its only priority was to prevent a fall in stock price.
• The exposure of the whole scam was came out on April 23, 1992 by journalist Sucheta Dalal. She is a
columnist in Times Of India.

26. THANK YOU
THANK YOU