The Big Bull V/S Scam 1992: Everything You Need To Know About Harshad Mehta Stock Market Scam
¡°Jab Jeb Mein Money Ho, Toh Kundli Mein Shani Hone Se Koi Farak Nahi Padhta. Yeh Meri Astrology Hai.¡±
2020 might go down as the worst year in history but there is a silver lining that needs to be acknowledged. The art and the artists have somewhat kept us occupied and sane. With so many intriguing web-series and films offered to us on a platter, it does take off our mind from pressing issues at hand albeit for a limited time.?
The one topic that has piqued everyone¡¯s interest is the Harshad Mehta Scam. Before Vijay Mallya, Nirav Modi and Mehul Chowksi, it was this very man who took the world by surprise with the biggest financial scam in the Indian Stock Market in the year 1992.?
Two projects revolving around Harshad Mehta are all set to enthrall the audience. On one hand we have Abhishek Bachchan playing the ¡®The Big Bull¡¯ in a biopic and on the other we have National Award-winning filmmaker Hansal Mehta recreating everything that went down in his web-series called ¡®Scam 1992¡¯. It is now streaming on Sony Liv. The Abhishek Bachchan movie will be out on Oct 23.
Before you binge-watch on these, here¡¯s everything you need to know about Harshad Mehta, who was also called ¡®The Amitabh Bachchan Of Stock Market:
1. One of India¡¯s biggest scams by Harshad Mehta took place in 1992 when he shook the Bombay Stock Exchange. He took advantage of the loopholes in the Indian banking system and the Bombay Stock Exchange transaction system.
2. Hailing from a Gujrati-Jain family, Mehta was a commerce graduate who started his career as a sales personnel at the Mumbai office of New India Assurance Company (NIACL). During this time, he took a keen interest in the share market and joined a brokerage firm B.Ambalal & Sons to learn the tricks of the trade.?
3. In 1984, Harshad Mehta finally became a broker and a member of the BSE. He then established his own firm called GrowMore Research & Asset Management. Within a couple of years, he started to trade and made a name for himself. Soon after, eminent people began investing in his firm and utilizing his services.
4. With a simple plan he manipulated the share price of Associated Cement Company (ACC) from Rs 200 to Rs 9,000 in a matter of 3 months. His power lied in his alliances with a set of brokers who together apprised or crashed the Sensex by their unison in buying and selling.?
5. Touted as the Pied Piper of Stocks, he lured gullible investors with his believable theories including Asset Replacement Value as well as ¡®Water & Gold¡¯. While the former was a complex justification for rise in valuation, the latter was ludicrous to some extent. He insisted that water is an easily available commodity and is cheap despite being essential for life. Gold, on the other hand, is not essential for life but is valuable because of short supply.?
If the same water is sold in the middle of a desert, it would hold more value due to less availability. Going by the same principle, he created scarcity in stocks but mopping up their marketable liquidity, thus increasing the prices to unjustified levels.
6. According to managementstudyguide.com:
Harshad Mehta¡¯s scheme was very simple in essence. He would secretly embezzle huge sums of money from the government securities market for a short duration. He would then invest this money in a few selected securities and drive their prices insanely high. When people would get excited about a particular security, Harshad Mehta would slowly liquidate his holdings, pay off the embezzled money and pocket the huge difference caused by rising prices.?
The scale at which Harshad Mehta was doing this was unimaginable. In one year, he had driven the Sensex i.e. the index of the Bombay Stock Exchange from 1000 to 4500! It was an unprecedented bull run, never seen in the history of a conservative Indian market.
7. The role of a stock broker entailed that he had to only bring the parties together and then banks would undertake the transaction of securities and oversee the lending of money. However, in the world created by Harshad Mehta, it was the broker who was the market maker - which means that both the parties were dealing with the broker without ever knowing who the counterparty was!?
This helped Mehta to get the banks to deposit a check in his account and he was responsible for the funds for a short period of time. The time lag in disbursement of the money and depositing of collateral meant that for a certain period of time, the money was essentially an unsecured loan to the broker and could be used to rig the markets.
8. In 1992, the stock market crashed and Harshad Mehta was unable to book profit. It was in the same year, journalist Sucheta Dalal exposed Harshad Mehta¡¯s scam. She smelled something fishy when she saw him arrive at the State Bank of India offices in a brand new Toyota Lexus, which had just been released internationally and cost more than Rs 40 lakh at the time.?
The Harshad Mehta scam was discovered when attention was paid to the money missing from the government securities market. It was also alleged that the Bear Cartel ganged up on Mehta and blew the whistle on him to get rid of him and the bullish run altogether.
9. Harshad Mehta was arrested by the Central Bureau of Investigation (CBI) in November 1992. The expos¨¦ of this scam drove the Chairman of Vijaya bank to suicide because he had issued cheques to Mehta.?
10. Harshad Mehta was convicted by the Bombay High Court and the Supreme Court of India for his part in this financial scandal valued at Rs 5000 crore, ($740 million).
The committee found Harshad Mehta directly responsible for embezzling worth Rs 1439 crores ($3 billion) and causing a scam that led to the loss of wealth to the tune of Rs 3542 crores ($7 billion).
11. Harshad Mehta was charged with 72 criminal offenses and more than 600 criminal action suits. After spending 3 months in custody, Mehta was released on bail. In a press conference, Harshad Mehta claimed that he had bribed the then Prime Minister P.V. Narasimha Rao for Rs 1 crore to secure his release.
12. In September 1999, the Bombay High court convicted him and sentenced him to 5 years of imprisonment. On 31 December 2001, at the age of 47, Harsha Mehta passed away in Tihar jail due to a heart attack.
