Harshad Mehta: Scam of 1992

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Scams are an important issue for everybody to understand in order to be aware of these circumstances and protect themselves against fraud. Scams disclose system faults that fraudsters take advantage of, thus it is equally vital for students who are studying for any competitive examinations. Here we are talking about one of the biggest scams that are the case of Harshad Mehta, the Big Bull of the stock market.

The high-profile fraud involving infamous stockbroker Harshad Mehta exposed the country’s banking system’s flaws, a problem that continues to result in numerous bank frauds. Every person related to the stock market knows about Harshad Mehta. In 1991, the country began to implement economic reforms. For the Indian economy, the years 1990 to 1992 were a period of significant transformation.

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But, in the meanwhile, fraud like this emerged which made historical changes in the process of buying and selling shares. Harshad Mehta was responsible for this scam. The scam was estimated to be worth Rs 4,000 crore, and it was only after that that SEBI (Securities and Exchange Board of India) was established to prevent stock market manipulation. Harshad Mehta, the scam’s principal perpetrator, died in 2002.

Harshat Mehta

Who is Harshad Mehta?

Harshad Mehta was born on 29th July, 1954 in Rajkot Gujarat. He spent his childhood in Kandivali, Mumbai. He studied at Holy Cross Byron Bazar Secondary School. Mehta pursued B.Com from Lajpat Rai College. For eight years he did small jobs. His first job was as a salesperson in New India Assurance Company Limited. Then he worked in a brokerage firm named Harijivandas Nemidas Securities.

Mehta learned every trick of the market from Prasanna Parijvanadas and considered him as a guru. Beginning in 1980, he worked in a series of brokerage firms for ten years, rising through the ranks to positions of increasing responsibility. By 1990, he had grown to notoriety in the Indian securities business, earning him the name “Amitabh Bachchan of the Stock Market ” from the media including famous magazines like Business Today.

Also Read: Career Path of Ram Jethmalani

Harshad Mehta launched his own company named Grow More Research and Asset Management in 1984 and took membership as a broker in the Bombay stock exchange. He positively started to trade in 1986.

stock market

Harshad Mehta: “Big bull” exposed

Harshad Mehta changed the game of the Stock Market. Mehta was called the ‘Big Bull’ because he started the bull run in the stock market. Here bull run is a stock market in which share prices continue to climb. This happens when investors assume a long-term upward trend will continue.

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The shares which once used to be 200, Harshad took them to 9000 in a few years. In that period, it was said that the stock on which Harshad put his hands, its prices would increase. Meanwhile, the question arose from where does he get so much money. In the year 1992, Times of India journalist Sucheta Dalal disclosed that from where Harshad brings this money.

Also Read: Investment Banking – Career In The Financial World

Harshad Mehta used to take money from banks by taking loans for 15 days by becoming a middleman between two banks and then returning the money to the banks after earning profits. When this happened, the stock market started falling sharply.

Mehta used to get the Fake Bank Reconciliation Statement (BR) made from one bank, after which he could get the money comfortably from another bank as well. The account prepared to reconcile the difference between the cash book and the passbook balance is called a bank reconciliation statement. After the exposure, 72 criminal charges were imposed on Mehta and around 600 civil cases were filed.

Sucheta Dalal

End of Harshad Mehta

Many cases were going on against Harshad Mehta, but he was found guilty in only one case. Finding him guilty, the High Court had imposed a five-year jail period and a fine of Rs 25,000. Mehta was lodged in Thane jail. On December 31, 2001, he complained of pain late in the night, after which he was admitted to Thane Civil Hospital. He died in the hospital itself. The custodian sold Harshad’s properties and released an amount of more than 6 thousand crores in the name of banks and income tax to recover the loss.

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While Harshad Mehta defrauded banks and manipulated stocks by exploiting evident communications gaps in the money market, the modifications made after 1992, as well as those rectified later, have failed to close the gaps in India’s banking industry.

Also Read:How Old Do You Have To Be To Trade In Stock Market?

The problem of banks appears to be worsening, with larger scams emerging regularly. The Punjab National Bank was the most recent large one to be discovered in 2018. The Punjab National Bank (PNB) fraud case, which involved diamantaire Nirav Modi and Mehul Choksi, is an example of a bank being robbed due to a lack of regulatory scrutiny, both internally and by the central bank. These are the evidence of loopholes present in the banking system and fraudsters take advantage of that as Harshad Mehta did.

By- Sahil

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