Mehta stock broker

Harshad Shantilal Mehta was an Indian stockbroker who grabbed headlines for the notorious BSE security scam of Born in a lower middle-class Gujarati Jain family, Mehta spent his early childhood in Mumbai where his father was a small-time businessman.

Mehta studied in Holy Cross Higher Secondary School, Byron Bazar, Raipur. He quit his job at The New India Assurance Company in and sought a new one with BSE-affiliated stockbroker P.

Ambalal before going on to become a jobber on the BSE for stockbroker P. In , Mehta became a sub-broker for stockbrokers J. Shah and Nandalal Sheth. Having gained considerable experience as a sub-broker, he teamed up with his brother Sudhir to float a new venture called Grow More Research and Asset Management Company Limited. Another name that is rumored to have a crucial hand in the scam was Nimesh Shah.

However, Shah could keep a safe distance from the accusations and is currently known to be a heavy player in the Indian stock market. By year , Mehta became a prominent name in the Indian stock market.

He started buying shares heavily.

The shares of India's foremost cement manufacturer Associated Cement Company ACC attracted him the most and the scamster is known to have taken the price of the cement company from to approx. It is believed that It was later revealed that Mehta used the replacement cost theory to explain the reason for the high-level bidding.

The replacement cost theory basically states that older companies should be valued on the basis of the amount of money that would be needed to create another similar company. Mehta, along with his associates, was accused of manipulating the rise in the Bombay Stock Exchange BSE in They took advantage of the many loopholes in the banking system and drained off funds from inter-bank transactions.

Subsequently, they bought huge amounts of shares at a premium across many industry verticals causing the Sensex to rise dramatically. However, this was not to continue. The exposure of Mehta's modus operandi led banks to start demanding their money back, causing the Sensex to plunge almost dramatically as it had risen. Mehta was later charged with 72 criminal offences while over civil action suits were filed against him.

Significantly, the Harshad Mehta security scandal also became the flavor of Bollywood with Sameer Hanchate's film Gafla. Mehta's illicit methods of manipulating the stock market were exposed on April 23, , when veteran columnist Sucheta Dalal wrote an article in India's national daily The Times of India. 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 jewelers. 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. Although the broker does not handle the cash or the securities, this was not the case in the prelude to the Mehta scam. Mehta and his associates used this RF deal with great success to channel money through banks.

The securities and payments were delivered through the broker in the settlement process.

INDIAN ECONOMY: HARSHAD MEHTA'S SCAM

The broker functioned as an intermediary who received the securities from the seller and handed them over to the buyer; and he received the check from the buyer and subsequently made the payment to the seller. Such a settlement process meant that both the buyer and the seller may not even know the identity of the other as only the broker knew both of them.

The brokers could manage this method expertly as they had already become market makers by then and had started trading on their account. Mehta and his associates used another instrument called the bank receipt BR.

Securities scam: Harshad Mehta throws banking system, stock-markets into turmoil : Cover Story - India Today

Securities were not traded in reality in a ready forward deal but the seller gave the buyer a BR which is a confirmation of the sale of securities. A BR is a receipt for the money received by the selling bank and pledges to deliver the securities to the buyer. Armed with these schemes, all Mehta needed now were banks which would readily issue fake BRs, or ones without the guarantee of any government securities.

His search ended when he found that the Bank of Karad BOK , Mumbai and the Metropolitan Co-operative Bank MCB two small and little known lenders, were willing to comply. The two banks agreed to issue BRs as and when required. Once they issued the fake BRs, Mehta passed them on to other banks who in turn lent him money, under the false assumption that they were lending against government securities. Mehta used the money thus secured to enhance share prices in the stock market.

The shares were then sold for significant profits and the BR retired when it was time to return the money to the bank. Mehta continued with his manipulative tactics, triggering a massive rise in the prices of stock and thereby creating a feel-good market trajectory. However, upon the exposure of the scam, several banks found they were holding BRs of no value at all.

Mehta had by then swindled the banks of a staggering Rs 4, crore. The scam came under scathing criticism in the Indian Parliament, leading to Mehta's eventual imprisonment.

He was guilty of having issued checks to Mehta and knew the backlash of accusations he would have to face from the public. A few years later, Mehta made a brief comeback as a stock market expert and started providing investment tips on his website and in a weekly newspaper column.

He worked with the owners of a few companies and recommended the shares of those companies only. When he died in , Mehta had been convicted in only one of the 27 cases filed against him. Another eye-catcher was his extravagant lifestyle. Nine years after Harsad Mehta died, the I-T department and public sector banks PSBs have successfully recovered a significant portion of their claims emerging out of the securities scam from his liquidated assets.

The Supreme Court directed the Custodian of the attached properties and assets of the Harshad Mehta Group HMG in March to make payments of Rs1, However, Standard Chartered Bank, which had claimed Rs crore, has yet to recover its dues it was one of the late claimants.

Although the total claim over the HMG is of more than Rs 20,crore, the apex court has said that for the present, it would only consider claims towards the principal amount. A chartered accountant by training, Parekh comes from a family of brokers and is currently serving a period of disqualification from trading in the Indian bourses till Parekh is known to have no reluctance in meeting the press. He is also known to have razor-sharp forecasts on market developments.

The two have been compared by people to have operated their scams using similar means and that their backgrounds were similar as well. But the differences are very conspicuous. He is also related to many prominent brokers. Secondly, when Mehta was operating, the market was still a closed one and was just beginning to liberalize. It was revealed later that Mehta operated using the money of other people as his last recourse. Further, Mehta is known to have resorted to aggressive publicity campaigns whereas KP operates almost clandestinely.

The latter has also been successful at creating stories and selling them aggressively to institutional investors. Parekh attracted the attention of market players and they kept track of every move of Parekh as everything he was laying his hands on was virtually turning into gold.

But the Pentafour Bull still kept a low profile, except when he hosted a millennium party that was attended by politicians, business magnates and film stars. Almost everyone, from investment firms which were mostly controlled by promoters of listed companies to foreign corporate bodies and cooperative banks were eager to entrust their money with Parekh, which, he in turn used to inflate stock prices by making his interest obvious.

Almost immediately, stocks of firms such as Visual soft witnessed meteoric rises, from Rs to Rs 8, per unit, while those of Sonata Software were up from Rs 90 to Rs 2, However, this fraudulent scheme did not end with price rigging. The rigged-up stocks needed dumping onto someone in the end and KP used financial institutions such as the UTI for this. When companies seek to raise money from the stock market, they take the help of brokers to back them in raising share prices.

KP formed a network of brokers from smaller bourses such as the Allahabad Stock Exchange and the Calcutta Stock Exchange.

KP also had large borrowings from Global Trust Bank and he rigged up its shares in order to profit significantly at the time of its merger with UTI Bank.

While the actual amount that came into Parekh's kitty as loan from Global Trust Bank was reportedly Rs crore, its chairman Ramesh Gelli is known to have repeatedly asserted that Parekh had received less than Rs crore in keeping with RBI norms.

Parekh and his associates also secured Rs 1,crore as loan from the Madhavpura Mercantile Co-operative Bank despite RBI regulations that the maximum amount a broker could get as a loan was Rscrore.

Notably, a day after the presentation of the Union Budget in February , Parekh appeared to have run out of luck. Even the borrowings of KP put together could not rescue his scrips.

The Global Trust Bank and the Madhavpura Cooperative were driven to bankruptcy as the money they had lent Parekh went into an abyss with his reportedly favourite K stocks.

As with the Harshad Mehta scam, Ketan Parekh's fraudulent practices were first exposed by veteran columnist Sucheta Dalal. When the prices of select shares started constantly rising, innocent investors who had bought such shares believing that the market was genuine were about to stare at huge losses.

Soon after the scam was exposed, the prices of these stocks came down to the fraction of the values at which they had been bought. When the scam did actually burst, the rigged shares lost their values so heavily that quite a few people lost their savings. Some banks including Bank of India also lost significant amounts of money. The Securities Exchange Board of India SEBI and the Reserve Bank of India RBI had remained complacent when the stock bubble was created during the latter half of and through while it had not bothered to take any action through when it was ready to burst.

SEBI investigations into Parekh's money laundering affairs revealed that KP had used bank and promoter funds to manipulate the markets.

It then proceeded with plugging the many loopholes in the market. The trading cycle was cut short from a week to a day. SEBI formally introduced forward trading in the form of exchange-traded derivatives to ensure a well-regulated futures market.

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It also did away with broker control over stock exchanges. Furthermore, the information provided by the RBI to the Joint Parliamentary Committee JPC during the investigation revealed that financial institutions such as Industrial Development Bank of India IDBI Bank and Industrial Finance Corporation of India IFCI had given loans of Rs 1, crore to companies known to be close to Parekh.

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. Observers said the regulator still continued believing that its only priority was to prevent a fall in stock prices. It was rumored that SEBI banned short sales and increased margins creating a virtual cash market in the process and squeezed turnover to a sixth of the normal level.

It also fired all broker directors from the Bombay Stock Exchange and Calcutta Stock Exchange and declared the completion of three controversial settlements of the Kolkata bourse by retaining a sizeable proportion of the payout of operators who had allegedly tied-up for collusive deals. Furthermore, SEBI rounded up the bear operators and launched an inquiry into their alleged short sales.

Parekh's fraudulent operations motivated the authorities to take necessary steps that have made made India's stock markets relatively safer in present times. He can also be credited for having forced indolent policy-makers to bring about reforms in the financial system. The report says that as recently as December , KP has been rallying behind different stocks and placing some of them at rigged up prices to large institutions such as the LIC.

He is operating through little-known investment firms, market operators and a following of loyal brokers. KP, who was at the forefront during the technology shares-led bull run in , is apparently using front entities such as Orchid Chemicals , GMR Infrastructure, Cairn India, Deccan Chronicles Holdings, Reliance Industries, Punj Lloyd, Indiabulls Real Estate, Pipavav Shipyard, Amtek Auto, Hindustan Oil Exploration, UCO Bank, State Bank of India, EIH and JSW Steel, among others, to trade in shares.

The report further states that KP has been instrumental in inflating the share price of SKS Microfinance from Rs to Rs1, following its listing in August KP and his associates have also acquired very large positions in petroleum companies such as ONGC and HPCL, according to the report.

The making of the security scam Mehta, along with his associates, was accused of manipulating the rise in the Bombay Stock Exchange BSE in The security scam and its exposure Mehta's illicit methods of manipulating the stock market were exposed on April 23, , when veteran columnist Sucheta Dalal wrote an article in India's national daily The Times of India.

Complicit lenders Armed with these schemes, all Mehta needed now were banks which would readily issue fake BRs, or ones without the guarantee of any government securities.

Outcome Mehta continued with his manipulative tactics, triggering a massive rise in the prices of stock and thereby creating a feel-good market trajectory. I-T, PSBs recover dues nine years after Mehta's death Nine years after Harsad Mehta died, the I-T department and public sector banks PSBs have successfully recovered a significant portion of their claims emerging out of the securities scam from his liquidated assets.

What distinguishes Ketan Parekh from the 'Big Bull' late Harshad Mehta The two have been compared by people to have operated their scams using similar means and that their backgrounds were similar as well. The Midas touch Parekh attracted the attention of market players and they kept track of every move of Parekh as everything he was laying his hands on was virtually turning into gold. Lady luck disfavours Parekh! The exposure of the dupe As with the Harshad Mehta scam, Ketan Parekh's fraudulent practices were first exposed by veteran columnist Sucheta Dalal.

Criticism of SEBI 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. Stringent regulatory measures follow Parekh episode Parekh's fraudulent operations motivated the authorities to take necessary steps that have made made India's stock markets relatively safer in present times.