HARSHAD MEHTA SCAM

HARSHAD MEHTA SCAM

INTRODUCTION.

Harshad was the richest man between 1991 and 1992, beating out wealthy professions like

actresses. The countless scams perpetrated by this guy are well known. He has conned a lot of wealthy people and even had political backing. He had two arrests. He defrauded banks, stole money, and conned stock brokers to live a lavish lifestyle in India. He was knowledgeable about every facet of financial marketing and share marketing. He acted as a financial intermediary between banks. The article describes in great detail everything Harshad performed from the time of his birth till his passing. He has committed fraud, the reasons for which he did so, the consequences of his actions, and other things.

I- SCAM OF HARSHAD MEHTA

Through his employment, Harshad Mehta gained knowledge of the stock market and its strategies. He did not learn them from books or the internet—he learnt them through his own experience. He was a clever individual who quickly became knowledgeable about the stock market. He was well-versed in the ups and downs of the stock market.

• To expand his business, he founded his own brokerage company in 1986 called “Grow More Research and Asset Management” to acquire and sell public shares in particular companies. His clients started coming to him for guidance on where to make investments or buy stock. He chose a filthy company that is useless, where the businesses don’t even have an address, or a business that doesn’t even exist.
• He was referred to as both the “Amitabh Bachchan of the Indian stock market” and the “Red Bull of Dalal Street.” The shareholders erred by failing to verify the information he provided. They bought those shares because they had complete faith in him.
• The tactic used to boost these companies’ share market values was to present them as successful businesses that provide advantages for their shareholders.
• This was his first scam because there was no internet in the 1990s to check. The stock market was very profitable for him.

II- SCAM OF HARSHAD MEHTA 

• Harshad Mehta then decided to go forward by choosing to work as a broker for banks in the financial arena. By pretending to be a broker to several of the banks, he deceived them.
• In order to lend money and receive money when a bank needs it using the bank’s securities, bank brokers connect two banks.
• In order to transfer money to the receiving bank, Harshad Mehta gave the lending bank instructions to deposit the money into his personal account.
• Similar to this, he used falsified bank receipts to trigger and obtain illegal cash from
• numerous reputable banks, including National Housing Bank, State Bank of India, and UCO Bank.
• He started by properly crediting these payments to the banks, and over time he subtly started to defraud those banks by fraudulently crediting funds to his accounts. Through this fraudulent scheme, he was able to gain additional funds in the millions, which he then put into his little firm.
• The money that was given to the bank for protection or security is the money that belonged to the people. He received the funds, which were ineffectively managed, and wasted them. When he started to become more affluent, he stopped offering money and compelling everyone who was wealthy to fall for his frauds.
• Everyone started to pay attention to his behaviour, especially Times of India correspondent Sucheta Dalal. When she discovered every one of Harshad’s frauds, she began to take notes of his activities.
• He had perpetrated a $1 billion scam to buy stocks from the Bombay Stock Exchange, which caused a serious collapse of the Indian stock market and a loss to the financial system of Rs. 3500–4000 crores, known as the scam 1992.
• He was taken into custody and eventually released on bail. 74 criminal cases were brought against Harshad Mehta. Later, he was jailed after being accused of a different financial crime. 

THE CRIMES THAT HARSHAD MEHTA COMMITTED 

Fraud is a capital market swindle when the truth is manipulated to boost profits. This

con contains four main components.

1. Division of Funds – In order to encourage brokers’ activities on the stock market, money is improperly  transferred from the banking system to them.

2. Intra-Day Trading – The fundamental technique entailed buying large amounts of particular stocks at the beginning of the day, which caused a sharp rise in the stock price, and then selling them off at the end of the day in order to realise enormous profits.

Use of Ready Forward(RF) to maintain Statutory Liquidity Ratio(SLR)

 A ready forward loan is a brief loan given by one bank to another, typically for a period of 15 days or less. It’s the same as one bank selling another their securities with the promise to buy them back at a predetermined price. Early in the 1990s, the Statutory Liquidity Ratio in India mandated that banks maintain a specific proportion of their deposits in the form of government securities (SLR). The entire bond buying and selling process was managed by brokers, who were also aware of the two parties involved. Individual banks were in the dark about the identity of the other party during the transaction. This procedure is divided into three steps:

1. Settlement process

The transacting banks make payments and directly transfer the securities to one another as part of the standard settlement procedure for government securities. In this settlement process, securities  are delivered and payments are made via the broker. When it comes time for payment, the broker acts as the middleman and transfers the funds to the seller after receiving the securities from the seller and sending them to the broker, who then sends them to the buyer. It’s possible that neither the buyer nor the seller are aware of who they have dealt with; the broker may be the only one who is aware.

2. Payment cheques

Brokered settlement allowed the broker to keep the check while it was being transferred through him from one bank to the next. Even though the check was made payable to the bank and had a crossed account payee, the problem now was crediting it to the broker’s account. Brokers asked for checks to be written in their own names so they could pay the other party directly. To receive the cash and transfer them to the broker’s account the same day, the broker must obtain a check drawn from the RBI in favour of his bank. As a result, the brokers were able to receive their payment as soon as the transaction was complete, which they used to make stock market investments.

3. Dispensing of securities

In exchange for the promise of receiving the securities the following day with a 15 percent interest rate for one day, the brokers used their reputation to persuade banks to make checks without first receiving the stocks. Because it was against the law for banks to distribute their funds without a guarantee, bank employees were bought to perform this task.

4. Fake bank Receipts (BR)

Bank receipts were another tool used in this fraud (BR). The borrowing bank often issues a bank receipt rather than providing the lender the actual securities. Three reasons are served by bank receipts:

• This confirms the sale of securities ensures that the customer will receive the securities. It states that the seller is holding the securities on the buyer’s behalf. serves as a receipt for the funds owned by the selling bank.
• Brokers were so adept at fabricating BRs that they were able to obtain unsecured loans from numerous banks during the forgery in order to issue BRs, which were subsequently utilised to carry out RF trades with other banks. As a result, numerous banks provided these banks with sizable unsecured loans and extended credit to brokers.
• The Indian Penal Code, 1860’s Sections 465 and 467 on forgery punish the aforementioned
• financial offences.

CONCLUSION

Thoughtful and ambitious, Harshad Mehta chose the incorrect road to achieve his goals. This course ultimately resulted in his demise. The swindle exposed a number of flaws, one of which was the total lack of transparency in the financial markets. The prevalence of irregularities of all kinds was so great that even very irregular transactions drew little attention. This is the perfect environment for a hoax to emerge and grow to hazardous proportions. The worst financial scandal to ever occur in India was the Harshad Mehta scam, which was extremely public. Numerous people had passed away, and some had even killed themselves. Due to the hoax, all of the wealthy people were exhausted both mentally and physically. He was a daring stock broker by nature and was knowledgeable about both the flaws in the financial system and strategies for taking advantage of them