harsad mahta stock broker

1. Harshad Mehta
Harshad Shantilal Mehta
Born
29 July 1954[1]
Paneli Moti, Gujarat, India
Died
31 December 2001 (aged 47)
Mumbai
Residence Mumbai, Maharastra, India
Nationality Indian
Citizenship India
Occupation Businessman, Stockbroker
Harshad M Mehta was an Indian stockbroker, well known for his wealth and for having been
charged with numerous financial crimes that took place in 1992. Of the 27 criminal charges brought
against him, he was only convicted of one, before his death at age 47 in 2001. It was alleged that
Mehta engaged in a massive stock manipulation scheme financed by worthless bank receipts, which
his firm brokered in "ready forward" transactions between banks. Mehta was convicted by
the Bombay High Court and Supreme Court of India[2]for his part in a financial scandal valued at
49.99 billion (US$810 million) which took place on the Bombay Stock Exchange (BSE). The scandal
exposed the loopholes in theBombay Stock Exchange (BSE) transaction system and SEBI further
introduced new rules to cover those loopholes. He was tried for 9 years, until he died in the late
2001.[3][4]
Contents
[hide]
 1 Early life
 2 Career
o 2.1 The 1992 security scam
 3 Exposure, trial and conviction
o 3.1 Allegations of payment of bribe to India's prime minister
 4 Death
 5 In popular culture
 6 See also
 7 References
 8 External links
Early life[edit]
Mehta was born on 29 July 1954,[5] at Paneli Moti, Rajkot district, in a Gujarati Jain family. His early
childhood was spent in Kandivali, Mumbai, where his father was a small-time businessman. Later,
the family moved to Raipur, Chhattisgarh, where Mehta studied in Kalibadi Higher Secondary
School.

2. Career[edit]
By profession Mehta was Graduate in commerce. Over a period of ten years, beginning 1980, he
served in positions of increasing responsibility at a series of brokerage firms. By 1990, he had risen
to a position of prominence in the Indian securities industry. He established his own firm, with the
financial assistance of associates, when the BSE auctioned a broker's card. It was at this time that
he began trading heavily in the shares of Associated Cement Company (ACC). The price of shares
in the cement company eventually rose from Rs. 200 to nearly 9000. Mehta justified trading in ACC
shares by stating that the stock had been undervalued, and that the market had simply corrected
when it revalued the company at a price equivalent to the cost of building a similar enterprise; the
so-called "replacement cost theory".[6]
In criminal indictments later brought by the authorities, it was alleged that Mehta and his associates
then undertook a much broader scheme, which resulted in manipulating the rise in the Bombay
Stock Exchange. The scheme was financed by supposedly collateralised bank receipts, which were
in fact uncollateralised. The bank receipts were used in short -term bank-to-bank lending, known as
"ready forward" transactions, which Mehta's firm brokered. By the second half of 1991 Mehta had
earned the nickname of the 'Big Bull', because he was said to have started the bull run in the stock
market.[6]
The 1992 security scam[edit]
On 23 April 1990, journalist Sucheta Dalal exposed Mehta's illegal methods in a column in The
Times of India. Mehta was dipping illegally into the banking system to finance his buying.
Sucheta Dalal reveals Mehta's Scam
The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence
a secured short-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against
government securities just as a pawnbroker lends against jewellery. The borrowing bank actually sells the securities
to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price. It was
this ready forward deal that Mehta and his accomplices used with great success to channel money from the banking
system.
Sucheta Dalal, The Times of India ,[7]
A typical ready forward deal involved two banks brought together by a broker in lieu of
a commission. The broker handles neither the cash nor the securities, though that wasn't the case in
the lead-up to the scam. In this settlement process, deliveries of securities and payments were made
through the broker. That is, the seller handed over the securities to the broker, who passed t hem to
the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller.
In this settlement process, the buyer and the seller might not even know whom they had traded with,
either being known only to the broker. This the brokers could manage primarily because by now they
had become market makersand had started trading on their account. To keep up a semblance of
legality, they pretended to be undertaking the transactions on behalf of a bank.
Another instrument used was the Bank receipt (BR). In a ready forward deal, securities were not
moved back and forth in actuality. Instead, the borrower, i.e., the seller of securities, gave the buyer
of the securities a BR. As the authors write, a BR "confirms the sale of securities. It acts as a receipt
for the money received by the selling bank. Hence the name – bank receipt. 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."
Having figured out his scheme, Mehta needed banks which issued fake BRs (Not backed by any
government securities). "Two small and little known banks – the Bank of Karad (BOK) and the
Metropolitan Co-operative Bank (MCB) – came in handy for this purpose. These banks were willing
to issue BRs as and when required, for a fee," the authors point out. Once these fake BRs were
issued, they were passed on to other banks and the banks in turn gave money to Mehta, assuming

3. that they were lending against government securities when this was not really the case. This money
was used to drive up the prices of stocks in the stock market. When time came to return the money,
the shares were sold for a profit and the BR was retired. The money due to the bank was returned.
This went on as long as the stock prices kept going up, and no one had a clue about Mehta's
operations. Once the scam was exposed, though, a lot of banks were left holding BRs which did not
have any value – the banking system had been swindled of a whopping 40 billion (US$650 million).
When the scam was revealed, the Chairman of the Vijaya Bankcommitted suicide by jumping from
the office roof.[8] He knew that he would be accused if people came to know about his involvement in
issuing checks to Mehta. M J Pherwani ofUTI was also linked to Mehta.[6]
Exposure, trial and conviction[edit]
Exploiting several loopholes in the banking system, Mehta and his associates siphoned off funds
from inter-bank transactions and bought shares heavily at a premium across many segments,
triggering a rise in the Sensex. When the scheme was exposed, banks started demanding their
money back, causing the collapse. He was later charged with 72 criminal offences, and more than
600 civil action suits were filed against him.[6]
He was arrested and banished from the stock market with investigators holding him responsible for
causing a loss to various entities. Mehta and his brothers were arrested by the CBI on 9 November
1992 for allegedly misappropriating more than 2.8 million shares (2.8 million) of about 90 companies,
including ACC and Hindalco, through forged share transfer forms. The total value of the shares was
placed at 2.5 billion (US$41 million).
Mehta made a brief comeback as a stock market guru, giving tips on his own website as well as a
weekly newspaper column. However, in September 1999, Bombay High Courtconvicted and
sentenced him to five years rigorous imprisonment and a fine of 25000 (US$410).[9] On 14 January
2003, Supreme Court of India confirmed High Court's judgement. It was a 2:1 majority judgement.
While Justice B.N. Agrawal and Justice Arijit Pasayat upheld his conviction, Justice M.B. Shah voted
to acquit him.[2]
Allegations of payment of bribe to India's prime minister[edit]
Mehta again raised a furore in 1995 when he made a public announcement that he had paid 10
million (US$160,000) to the then Congress president and prime minister, Mr P.V. Narasimha Rao, as
donation to the party, for getting him off the scandal case.[3][10]
Death[edit]
Mehta was under Criminal custody in the Thane prison. Mehta complained of chest pain late at night
and was admitted to the Thane civil Hospital. He died following a brief heart ailment, at the age of
47, on 31 December 2001. He is survived by his wife and one son. [11] He died with
many litigations still pending against him. He had altogether 28 cases registered against him. The
trial of all except one, are still continuing in various courts in the country. Market
watchdog, Securities and Exchange Board of India, had banned him for life from stock market-related
activities.[3][8]
In popular culture[edit]
 In the 1995 movie "Gambler" starring Govinda, Harshad Mehta is referred in the parody song
"Stop That" at [ 02:13 ]

4.  The character Natwar Shah in movie Aankhein (released:1993), placed under scanner for a Rs.
50 billion scandal, was inspired by Harshad Mehta.[12]
 The Mehta scandal was portrayed in the Hindi movie, Gafla. It was premiered in Times BFI 50th
London Film Festival on 18 Oct 2006.[13]
 Mehta scandal life is covered by Sucheta Dalal and Debashish Basu in their book The Scam:
From Harshad Mehta To Ketan Parekh.[14]
 Harshad Mehta's trial has been referred to in 2001 Bollywood movie Nayak.
 The movie Gafla that was nominated globally in various important film events including at
London by Mr. Bradshaw is based on the actualities and prevalent realities in the stock market
and Harshad Mehta's scam.
See also[edit]
 Bombay Stock Exchange
 Abdul Karim Telgi
 Ramalinga Raju
 Hasan Ali Khan
 List of scandals in India