SCAMS & SCANDAL :HARSHAD MEHTA AND

KETAN PAREKH
Prepare by :-

Swapnil Manjrekar , Soumia Nair , Robbin Lalwani , Rachana Vaidya , Jackie Ganatra , Devendra Katke

SCAMS & SCANDALS

Scam is a plot/plan/confidence trick devised to trick people to part with their money for the promise of some gain which in reality is non existent. Scandal is an activity, perhaps illegal or immoral, which when it is disclosed will discredit and ruin the reputation of the people involved. Eg: Harshad Mehta, Ketan Parekh, Ramalingam Raju, Telgi, Lalit Modi etc.

HARSHAD MEHTA THE BIG BULL

Mehta was born on 29 July 1953 His father was a small-time businessman.

started his career as a small clerk in New India Assurance Co.

By 1990, Mehta rose to prominence in the stock market.
The BIG BULL in the Stock Exchange Market..!!
OBSERVATION

He found a flaw in the stock market and cashed it extensively

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THE BEGINING

Bank Has to maintain SLR (Statutory Liquidity Ratio)

The government decided that the banks need not show their details on each day, they need to do it only on Fridays
There was an extra clause that said that the average %age of bond holdings over the week needs to be above the SLR but the daily %age need not be so.

CONTINUE

That meant that banks would sell bonds in the earlier part of the week and then buy bonds back at the end of the week.
The capital freed in the starting of the week could then be invested. Now, at the end of the week many banks would be desperate to buy bonds back.

This is where the broker comes in.

.CONTINUE
The broker knew which bank had more bonds (called plus) and which has less than the required amount (called short). He then acts as the middleman between the two banks.

Harshad Mehta was one such broker. He worked as a middle man between many banks for a long time and gained the trust of the banks senior management

MON

TUE

WED

Money for D Money for B; promises to pay to B on tue

Money from C

Money for F

Money from E

Retains money of A for whole week as working capital

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THE TRAP

Another instrument used was the Bank receipt (BR).

In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e., the seller of securities, gave the buyer of the securities a BR.
A 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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THE TRAP

Having figured out his scheme, Mehta needed banks which issued fake BRs (Not backed by any government securities). Two small and little known banks - the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) - came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee.

THE CONSEQUENCES

crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alike. When the scam was exposed, banks started demanding their money back, causing the collapse. lot of banks were left holding BRs which did not have any value - the banking system had been swindled of a whopping 4,000 crore (US$798 million). By the end of March 2001, at least eight people were reported to have committed suicide and hundreds of investors were driven to the brink of bankruptcy.
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KETAN PAREKH THE NEXT BIG BULL

A chartered accountant by qualification. He used to run a family business, NH Securities. Ketan Parekh is a former stock broker from Mumbai. He was trainee of Harshad Mehta He was convicted in 2008, for involvement in the Indian stock market manipulation scam in late 1999-2001

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WAYS HE FUNDED HIS SCAM :

He targeted smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and bought shares in fictitious names. He funded his scam in two ways
1.
2.

Pay Order Route Fraud Accounts Borrowing

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Pay Order Route Ketan Parekh (Individual)

K.P Account 1

K.P Account 2

Madhavapura Mercantile Cooperative Bank (MMCB)

Bank of India (BOI)

Cheque drawn on BoI Discounted in MMCB Zero Balance

Pay Order

Money Deposit

Stock Buy In Market

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Fraud Accounts Borrowing

MMCB branch at Mandvi (Mumbai) Global Trust Bank

Broker Limit 15 Crores Per Broker Account Limit 15 Crores

KP - A - 1 Account 1

KP - A - 2 Account 2

KP - A - 3 Account 3

KP - A - 4 Account 4

KP - A - 5 Account 5

KP - A - 6 Account 6

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FATORS THAT HELPED KP

His financing method was fairly simple He bought shares when they were trading at low price and saw the prices go up in the bull market while continuously trading. When the prices was high enough, he pledged the shares with banks as collateral for funds

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CONSEQUENCES

RS. 2000 billion lost All Ketan Parekh had to say was I made mistakes The Retail investors were the worst hit SBI, BOI, PNB had to suffer huge losses MMCB also suffered huge losses

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SIMILARITIES

Both are BIG BULLS Scam story is similar only person & scam year different Buy stock at rock bottom prices & push it up Banks were involved Harshad Mehta scam was related to bank receipt Ketan Parekh scam was related to pay order
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Thank You
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