CAPITAL MARKET SCAMS :

CAPITAL MARKET SCAMS

OVERVIEW :
OVERVIEW CAPITAL MARKET CAPITAL MARKET SCAM HARSHAD MEHTA KETAN PAREKH
CAPITAL MARKET ? :
CAPITAL MARKET ? The capital market is the market for securities, where companie
s and govt. can raise long term funds. It is a market in which money is lent for
periods longer than a year. The capital market includes the stock market and th
e bond market
Slide 4:
It is basically fraud done in the Capital market with the investors by manipulat
ing the facts in order to attain enormous profits. What is Capital Market scam?
INTRODUCTION TO THE BIG BULL OF THE TRADING FLOOR . :
INTRODUCTION TO THE BIG BULL OF THE TRADING FLOOR .
The Great Indian Scam-1992 :
The Great Indian Scam-1992
Who is this man? :
Who is this man? HARSHAD MEHTA- story Started his career with New India Assuranc
e Co. Quit his job in 1981 to become a sub-broker. Went bankrupt in 1982 & recov
ered soon to become more stronger. Went on to become one the most successful bro
ker The Rags to Riches Story, thereby earning the nick name of THE BIG BULL
What was the SCAM all about? :
What was the SCAM all about? Diversion of funds Use of Ready Forward (RF) to mai
ntain SLR (Statutory Liquidity Ratio) Creative Accounting Intra-day Trading
Slide 9:
He triggered a rise in the Bombay Stock Exchange in the year 1992 by trading in
shares at a premium across many segments. Taking advantages of the loopholes in
the banking system, Harshad and his associates triggered a securities scam diver
ting funds to the tune of Rs 4000 crore (Rs 40 billion) from the banks to stockb
rokers between April 1991 to May 1992. Exploiting the loophole in the banking sy
stem
Slide 10:
Mehta soon mastered the tricks of the trade by managing several brokers and set
out on dangerous game plan. Mehta has siphoned off huge sums of money from sever
al banks and millions of investors were conned in the process. His scam was expo
sed, the markets crashed and he was arrested and banned for life from trading in
the stock markets. How it was done & role of the broker ?
Slide 11:
He was later charged with 72 criminal offences. A Special Court also sentenced S
udhir Mehta, Harshad Mehta's brother, and six others, including four bank offici
als, to rigorous imprisonment (RI) ranging from 1 year to 10 years on the charge
of duping State Bank of India to the tune of Rs 600 crore (Rs 6 billion) in con
nection with the securities scam that rocked the financial markets in 1992. He d
ied in 2002 with many litigations still pending against him. Major culprits Brok
ers, Bankers, Financial institutions, Bureaucrats, etc.
His favorite stocks included :
His favorite stocks included ACC Apollo Tyres Reliance Tata Iron and Steel Co. (
TISCO) BPL Sterlite Videocon.
Market at Harshad Mehta scam :
Market at Harshad Mehta scam
HARSHAD MEHTA : THE SCAMSTER. :
HARSHAD MEHTA : THE SCAMSTER.
The End of the BULL Story :
The End of the BULL Story Lifestyle (flashy cars & life like a celebrity) 31st D
ecember 2001 The Death Of The Bull Forever remembered as the Architect of the Rs
.50 billion Scam
THE FOLLOWER OF THE BIG BULL :
THE FOLLOWER OF THE BIG BULL
Introduction :
Introduction C.A by profession-comes from broking family background. Popularly k
nown as the Pentafour Bull Known for his K10 series of stocks. KETAN PAREKH
THE K-10 STOCKS :
THE K-10 STOCKS Amitabh Bachchan Corporation Limited (ABCL) Mukta Arts Tips Prit
ish Nandy Communications. HFCL Global Telesystems (Global) Zee Telefilms Crest C
ommunications PentaMedia Graphics
Slide 19:
Ketan Parekh followed Harshad Mehta's footsteps to swindle crores of rupees from
banks. A chartered accountant he used to run a family business, NH Securities.K
etan however had bigger plans in mind. He targetted smaller exchanges like the A
llahabad Stock Exchange and the Calcutta Stock Exchange, and bought shares in fi
ctitious names.
WAYS HE FUNDED HIS SCAM :
WAYS HE FUNDED HIS SCAM THE PAY ORDER ROUTE KP issued cheques drawn on BoI (Bank
of India) to MMCB (Madhavapura Mercantile Cooperative Bank), against which MMCB
issued pay orders. The pay orders were discounted at BoI. It was alleged that M
MCB issued funds to KP without proper collateral security and even crossed its c
apital market exposure limits.
THE PAY ORDER ROUTE :
THE PAY ORDER ROUTE KP reportedly used his BoI accounts to discount 248 pay orde
rs worth about Rs 24 billion between January and March 2001. BoI's losses eventu
ally amounted to well above Rs 1.2 billion.
WAYS HE FUNDED HIS SCAM :
WAYS HE FUNDED HIS SCAM BORROWING FROM MMCB The second route was borrowing from
a MMCB branch at Mandvi (Mumbai), where different companies owned by KP and his
associates had accounts.KP used around 16 such accounts, either directly or thro
ugh other broker firms, to obtain funds.
Slide 23:
Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his ambitions. Ketan
alongwith his associates also managed to get Rs 1,000 crore from the Madhavpura
Mercantile Co-operative Bank. According to RBI regulations, a broker is allowed
a loan of only Rs 15 crore (Rs 150 million). There was evidence of price rigging
in the scrips of Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Af
tek Infosys and Padmini Polymer.
HOW THE SCAM BROKE OUT? :
HOW THE SCAM BROKE OUT? His mode of raising funds by offerings shares as collate
ral securities worked well but ..
Slide 25:
Only till the prices of shares went up but it reversed when shares started falli
ng from mar 2000. The crash was a result of fall at NASDAQ that saw a fall in K-
10 stock as well In next 2 months, sensex declined by 23% and K-10 stock decline
d by 67%
WHAT NEXT? :
WHAT NEXT? In May 2000, the market picked up back and the prices of K-10 rise ag
ain The prices of stock doubled like HFCL doubled from Rs 790 to Rs 1353 by July
THE FINAL TURN AROUND :
THE FINAL TURN AROUND BY Dec.2000 the NASDAQ fell back again and the KP stocks w
ent down as the prices of stock falling globally
Cont .. :
Cont .. KP faced liquidity problems The CSE has payment crises and was a set back
for KP because of three reasons which are-
THE DOWN FALL :
THE DOWN FALL Stocks held by KP and his broker were reduced to 6-7 bn from 12bn
Situation worsened when KPs badla payment was not honored and 70 CSE brokers alo
ng with top 3 brokers made default By mid March the value of shares went to 2.5-
3 bn.
THE END :
THE END KPs brokers started pressuring him for payment. SEBI tricked the regulat
ory norms and several other rules were framed Finally KP was arrested.