ASSIGNMENT No-02

HARSHAD MEHTA & KETAN

PAREKH

Prepared By – Kavya A S

HARSHAD MEHTA.

 Introduction.-

 Harshad Shantilal Mehta was born on 29 July 1954, at Paneli

Moti, Rajkot district, in a Gujrati jain family
 His early childhood was spent in Kandivali, Mumbai here his
father was a small-time businessman.
 Later, the family moved to Raipur’s Modhapara, Chhattisgarh,
where Mehta studied in Holy Cross Byron Bazar Higher Secondary
School.
 Mehta completed his B.com in 1976 from laipatrai
College Mumbai and worked a number of odd jobs for the next
eight years.
 Mehta started his career as a sales person in the Mumbai office
of New India Assurance Company Limited (NIACL).
 In the early 1980s, he moved to a lower level clerical job at the
brokerage firm Harjivandas Nemidas Securities where he worked
a jobber for the broker Prasann Pranjivandas Broker who he
considered his "Guru".

 GrowMore Research And Asset

Management.

 In 1984, Mehta was able to become a member of the Bombay Stock

Exchange as a broker and established his own firm
called GrowMore Research and Asset Management, with the
financial assistance of associates, when the BSE auctioned a
broker's card.
 He actively started to trade in 1986.By early 1990, a number of
eminent people began to invest in his firm, and utilize his
services.
 It was at this time that he began trading heavily in the shares of
Associated Cement Company (ACC). The price of shares in the
cement company eventually rose from Rs. 200 to nearly 9000 due
to a massive spate of buying from a set of brokers including
Mehta.
 During this period, especially in 1990–1991, the media portrayed
a heightened deifield image of Mehta, calling him "The Big Bull".
 He was covered in a cover page article of a number of
publications including the popular economic magazine Buisiness
Today, in an article titled "Raging Bull".
 In criminal indictments later brought by the authorities, it was
alleged that Mehta and his associates then undertook a much
broader scheme, which resulted in manipulating the rise in the
Bombay Stock Exchange.
 The bank receipts were used in short-term bank-to-bank lending,
known as "ready forward" transactions, which Mehta's firm
brokered.
 By the second half of 1991 Mehta had earned the nickname of the
"Big Bull", because he was said to have started the bull run in the
stock market.

 Stamp paper scam.

 The Rs. 2200 crore "stamp paper scam" of 1992 initially involved
the printing & selling of stamp papers. It involved fraudulent
printing & sale of stamp papers in various parts of the country,
including by the likes of a young high school pass out in a small
town of Karnataka, Telgi.
 However, they were expected to post profits and to retain a certain
ratio (threshold) of their assets in government fixed interest
bonds.
 Mehta cleverly squeezed capital out of the banking system to
address this requirement of banks and pumped this money into
the share market.
 He also promised the banks higher rates of interest, while asking
them to transfer the money into his personal account, under the
guise of buying securities for them from other banks. At that time,
a bank had to go through a broker to buy securities and forward
bonds from other banks.
 Mehta used this money temporarily in his account to buy shares,
thus hiking up demand of certain shares (of good established
companies like ACC, Sterlite Industries and Videocon)
dramatically, selling them off, passing on a part of the proceeds
to the bank and keeping the rest for himself.
 This resulted in stocks like ACC (which was trading in 1991 for Rs.
200/share) to nearly Rs. 9000 in just 3 months.
  Bank receipt scam.

 Another instrument used in a big way 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. The BR confirms
the sale of securities.
 It acts as a receipt for the money received by the selling bank.
Hence the name - bank receipt.
 Having figured this out, Mehta needed banks, which could issue
fake BRs, or BRs not backed by any government securities.
 Two small and little known banks - the Bank of Karad (BOK) and
the Mumbai Mercantile Co-operative Bank (MCB) - came in
handy for this purpose.
 He took the price of ACC from Rs. 200 to Rs. 9,000. That was an
increase of 4,400%.

Outbreak of 1992 security scam.

 On 23 April 1992, journalist Sucheta Dalal exposed Mehta's illegal

methods in a column in The Times of India.
 Mehta was dipping illegally into the banking system to finance
his buying.
 A typical ready forward deal involved two banks brought together
by a broker in lieu of a commission. The broker handles neither
 the cash nor the securities, though that wasn't the case in the
lead-up to the scam.
 When time came to return the money, the shares were sold for a
profit and the BR was retired. The money due to the bank was
returned.
 This went on as long as the stock prices kept going up, and no one
had a clue about Mehta's operations.
 Once the scam was exposed, though, a lot of banks were left
holding BRs which did not have any value – the banking system
had been swindled of a whopping 40 billion (US$600 million).

 Explosure, trial and conviction.

 Exploiting several loopholes in the banking system, Mehta and his

associates siphoned off funds from inter-bank transactions and
bought shares heavily at a premium across many segments,
triggering a rise in the BSE SENSEX.
 When the scheme was exposed, banks started demanding their
money back, causing the collapse. He was later charged with
72 criminal offences, and more than 600 civil action suits were
filed against him.
 Mehta and his brothers were arrested by the CBI on 9 November
1992 for allegedly misappropriating more than 2.8 million shares
(2.8 million) of about 90 companies, including ACC
and Hindalco, through forged share transfer forms. The total
value of the shares was placed at Rs2.5 billion (US$37 million).
 However, in September 1999, Bombay High Court convicted and
sentenced him to five years rigorous imprisonment and a fine
of Rs 25,000 (US$370).
 On 14 January 2003, Supreme Court of India confirmed High
Court's judgement. It was a 2:1 majority judgement.
 Mehta again raised a furore on 16 June 1993 when he made a
public announcement that he had paid Rupees 1 Crore to the
then Congress president and prime minister, Mr. P.V Narasimha
Rao, as donation to the party, for getting him off the scandal
case.

 Demise.
 Mehta was under Criminal custody in the Thane prison. Mehta
complained of chest pain late at night and was admitted to the
Thane civil Hospital. He died following a brief heart ailment, at
the age of 47, on 31 December 2001. He is survived by his wife and
one son.

 KETAN PAREKH.

 Introduction

 Ketan Parekh is a former stock broker from Mumbai, India.

 Who was convicted in 2008, for involvement in the Indian stock
market manipulation scam that occurred from late 1998 to 2001.
 Parekh started his career in the late 1980s at Narbheram
Harakchand Securities (NH Securities), a reputed institutional
brokerage firm.

 Early Carrier
 In the 90s, he came in contact with Harshad Mehta, a well known
stock broker and subsequently joined Mehta's firm GrowMore
investment, a firm that Mehta had set up and which was involved
in the 1992 Indian stock market scam.
 Though one of the accused in some of the scams that Growmore
was involved in, Parekh was never convicted in them.
 However, this started to change in 1999-2000 as Parekh got closer
to celebrities. Parekh began cultivating friendships with people
in Bollywood including Amitabh Bachchan and the diamond
merchant Bharat Shah, thus coming into the media's eye and
limelight.
 This led to an investigative story on him which was first published
on 25 August 2000 covering a millennial bash that he had given
at his palatial bungalow at Mandwa (near Mumbai), which was
attended by Mumbai's gliteratti, industrialists and media
personalities.
 He invested heavily in stocks related to IT, media and
communication and propagated them.
 As cover stories emerged in the financial media of his
malpractices related to the stock market, scrutiny shifted to his
activities leading to his arrested on 30 March 2001.

 Role in 2001 stock market

crash.

 Parekh purchased large stakes in less known small market

capitalization companies, and jacked up their prices through
circular trading with other traders, and collusion with these
companies and large institutional investors.
 This resulted in steep hikes in share prices (for example: shares of
Zee telefilms zoomed up from Rs. 127 to a price of Rs. 10,000.[9]
 This set of ten stocks was colloquially referred to as "K-10" stocks
and Parekh was playfully referred to as "Pentafour".
 It later transpired that promoters and industrialists often gave
Parekh funds to artificially rig up their share prices. Thus in just
a few months, scrips of virtually unknown companies like
Visualsoft rose from Rs 625 to Rs 8,448 per share and Sonata
Software rose from Rs 90 to Rs 2,150.
 However, the bear cartel in Bombay stock exchange started to
hammer his K-10 stocks in February 2001, leading them to fall
and precipitating a payment crisis in Kolkata.
 On 1 March 2001, just after the Indian Union Budget had been
presented, the BSE Sensex crashed 176 points, prompting the then
NDA government to set up an inquiry into the market reaction.
 Subsequently the RBI refused to clear pay orders (POs) that had
been given by Parekh as collateral for loans to BOI (Bank of
India), as they found them to be suspicious.
 The RBI commenced an investigation against Parekh. Around
the same time, a bear cartel of brokers in Mumbai opposed to
Parekh tried to dump their shares of K-10 stocks.
 Panicking, Parekh sold off his entire ownership of the so called K-
10 stocks that he had successfully jacked up over the past two
years, especially those of two entities - GTB bank and MMCB bank.
 He carried out this large scale dump in the evening, after regular
trading hours, from 5 pm to midnight at the Calcutta stock
Exchange.
 This resulted in a stock market crash the next day, resulting in
large scale losses for large institutional investors, including
insurance companies and mutual funds.
 A 30 member Joint Parliament Committee (JPC) investigation
ensued which found that Parekh had been involved in circular
trading throughout the time period from and with a variety of
companies, including Global Trust Bank (GTB) and Madhavpura
Mercantile Cooperative Bank (MMCB).
 The JPC found him to have played a major role in rigging the
prices of a set of Ten Indian companies, from 1995 up to 2001.
 Shares of a company called Himachal Futuristic Communications
(HFCL), which had languished at Rs. 50 after the Sukhram
controversy were ramped up by Parekh to Rs 2400 in less than a
year
 This resulted in Parekh's first conviction, which carried a one-
year sentence, coming as a result of a transaction he conducted
involving a unit of Canara Bank in 1992.
 Though Parekh was subsequently barred from stock trading,
the Securities and Exchange Board of India alleged in 2009 that
a variety of companies and other actors were trading on behalf of
Parekh.
 An investigation ensued and 26 entities were banned from
trading as a result of that investigation.
 In March 2014 he was convicted by a special CBI court
in Mumbai for cheating and sentenced to two years rigorous
imprisonment.