Harshad Mehta was an Indian stockbroker , well known for his wealth and for having been charged with numerous financial crimes that took place in Of the 27 criminal charges brought against him, he was only convicted of four, before his death at age 47 in 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. The scandal exposed the loopholes in the Indian banking system , Bombay 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 late Harshad Shantilal Mehta [5] was born on 29 July , [6] at Paneli Moti, Rajkot district , in a Gujarati Jain family.

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His early childhood was spent in Kandivali, Mumbai , where his father was a small-time businessman. Later, the family moved to Raipur's Modhapara, Chhattisgarh , where Mehta studied in Holy Cross Byron Bazaar Higher Secondary School. A cricket enthusiast, Mehta did not show any special promise in school and came to Bombay after his schooling for studies and to find work. Com in from Lajpatrai college Mumbai and worked a number of odd jobs for the next eight years.

After graduation, Mehta tried his hand at various jobs, often related to sales, including selling hosiery, cement, and sorting diamonds. Mehta started his career as a sales person in the Mumbai office of New India Assurance Company Limited NIACL.

During this time, he got interested in the share market and after a few years, resigned and joined a brokerage firm. In the early s, he moved to a lower level clerical job at the brokerage firm B.

By , he had risen to a position of prominence in the Indian securities industry, with the media including popular magazines such as Business Today touting him as "The Amitabh Bachchan of the Stock market". In , Mehta was able to become a member of the Bombay Stock Exchange as a broker and established his own firm called GrowMore Research and Asset Management , with the financial assistance of associates, when the BSE auctioned a broker's card.

Chidambaram through Chidambaram's own shell companies. 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.

During this period, especially in , the media portrayed a heightened deified image of Mehta, calling him "The Big Bull". He was covered in a cover page article of a number of publications including the popular Economic magazine Business today, in an article titled "Raging Bull". His flashy lifestyle of a sea facing 15, feet penthouse in the tony area of Worli complete with a mini golf course and swimming pool, his fleet of a fleet of cars including a Toyota Lexus , Corolla Starlet, Toyota Sera were flashed in publications.

These further exemplified his image at a time when these were rarities even for the rich people of India. 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 Mehta had earned the nickname of the ' Big Bull' , because he was said to have started the bull run in the stock market.

Up to the early 90s, 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 threshold of their assets in government fixed interest bonds.

Mehta cleverly squeezed capital out of the banking system to address this requirement of banks and pumped this money into the share market. He also 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. At that time, a bank had to go through a broker to buy securities and forward bonds from other banks.

Mehta used this money temporarily in his account to buy shares, thus hiking up demand of certain shares of good established companies like ACC , Sterlite Industries and Videocon dramatically, selling them off, passing on a part of the proceeds to the bank and keeping the rest for himself. This resulted in stocks like ACC which was trading in for Rs. Another instrument used in a big way was the bank receipt BR.

In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i. The 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.

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Having figured this out, Mehta needed banks, which could issue fake BRs, or BRs not backed by any government securities. Two small and little known banks - the Bank of Karad BOK and the Mumbai Mercantile Co-operative Bank MCB - came in handy for this purpose. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, plainly assuming that they were lending against government securities when this was not really the case.

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He took the price of ACC from Rs. The stock markets were overheated and the bulls were on a mad run. Since he had to book profits in the end, the day he sold was the day when the markets crashed. On 23 April , 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. 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 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. 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 them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller.

Stock Market Frauds in India

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 makers and 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. As the authors write, a BR "confirms the sale of securities.

Hence the name — bank receipt. Having figured out his scheme, Mehta needed banks which issued fake BRs Not backed by any government securities. 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 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.

He knew that he would be accused if people came to know about his involvement in issuing cheques to Mehta. M J Pherwani of UTI was also linked to Mehta. 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 BSE 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 civil action suits were filed against him.

He was arrested and banished from the stock market with investors holding him responsible for causing a loss to various entities.

Mehta and his brothers were arrested by the CBI on 9 November for allegedly misappropriating more than 2. Mehta made a brief comeback as a stock market guru, giving tips on his own website as well as a weekly newspaper column. It was a 2: Agrawal and Justice Arijit Pasayat upheld his conviction, Justice M. Shah voted to acquit him. Mehta again raised a furore on 16 June when he made a public announcement that he had paid Rupees 1 Crore to the then Congress president and prime minister, Mr P.

Narasimha Rao , as donation to the party, for getting him off the scandal case. 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 He is survived by his wife and one son. 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.

From Wikipedia, the free encyclopedia. Sucheta Dalal reveals Mehta's Scam. Retrieved 14 October The Hindu Business Line. Retrieved 31 October Retrieved 21 May Retrieved 20 April From Pied Piper of the markets to India's best-known scamster". Retrieved 31 December Retrieved from " https: Pages using citations with accessdate and no URL Pages using web citations with no URL Pages using ISBN magic links EngvarB from May Use dmy dates from May Articles with hCards.

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