Stock market scam

 1992 Harshad Mehta scam

      1992 Indian stock market scam done by Harshad Mehta. The security scam was estimated at 2000 to 4000 cr. Techniques used by Mehta involved having corrupt officials signing fake cheque , misusing market loopholes , and fabrication to drive the prices of stocks up to 40 times their original price.

     The 1992 scam was a systematic fraud committed by Mehta in the Indian stock market which led to the complete collapse of security systems. He committed a scam of over 1  billion from the banking system to buy stocks on the Bombay stock exchange.

  

Following 2 main scam done by harshad Mehta 

1. Stamp paper scam

    the early 90's, banks in India were not allowed to invest in the equity market. However, they were expected to post profits and to retain a certain ratio (threshold) of their assets in government fixed interest bonds. Mehta squeezed capital out of the banking system to address this requirement of banks and pumped this money into the share market. He 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, hike up demand of certain shares (such as that of Acc , and videocon dramatically, sell them off, pass on a part of the proceeds to the bank and keep the rest for himself. This resulted in stocks like ACC, which was trading in 1991 for ₹200/share, catapult to nearly ₹9,000 in just 3 months.

2. Bank receipt scam

    Another major instrument 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 serves as a receipt from the selling bank, and also promises that the buyer will receive the securities they have paid for at the end of the term. Having figured this out, Mehta needed banks, which could issue fake BRs, or BRs not backed by any government securities.

Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, plainly assuming that they were lending against government securities when this was not really the case.He took the price of ACC from ₹200 to ₹9,000. That was an increase of 4,400%. Since he had to book profits in the end, the day he sold was the day when the markets crashed.

Impect of scam 

     The immediate impact was a drastic fall in share prices and market index, causing a breakdown of the securities control system operation with the commercial banks and the RBI. Around ₹35 billion from the ₹2,500 billion market was withdrawn, causing the share market collapse. The Bombay Stock shares resorted to records tampering in the trading system.It caused panic with the public and banks were severely impacted. Banks like Standard Chartered and ANZ Grindlays were implicated in the scam for bank receipt forgery and transfer of money into Mehta's personal account. The government realized that the fundamental problem with the financial structure of the stock markets was the lack of computerized systems which impacted the whole stock market.

 

  

Harshad Mehta is brave stock broker he knew the loopholes in banking system as well as to how to explicit the loopholes. His  wall intense was to rise the sensex. Harshad Mehta also known as big bul And  amitabh bacchan of stock market.