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    Harshad Mehta and Ketan Parikh Scam

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    Ankur Madaan
    This document discusses two major stock market scams in India led by Harshad Mehta in 1992 and Ketan Parekh in 1999-2001. It describes their fraudulent circular trading mechanisms used to artificially inflate stock prices. It discusses the impacts of the scams, which included sharp declines in market prices and capitalization, delays in economic reforms, and increased regulation of the stock market by the Securities and Exchange Board of India (SEBI). However, several other scams after Mehta still occurred, questioning SEBI's effectiveness at preventing market manipulation and enforcing transparency. Reforms are still needed regarding issues like bear/bull cartels, insider trading, and uniform settlement cycles.

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    Harshad Mehta and Ketan Parikh Scam

    Uploaded by

    Ankur Madaan
    452 views6 pages
    This document discusses two major stock market scams in India led by Harshad Mehta in 1992 and Ketan Parekh in 1999-2001. It describes their fraudulent circular trading mechanisms used to artificially inflate stock prices. It discusses the impacts of the scams, which included sharp declines in market prices and capitalization, delays in economic reforms, and increased regulation of the stock market by the Securities and Exchange Board of India (SEBI). However, several other scams after Mehta still occurred, questioning SEBI's effectiveness at preventing market manipulation and enforcing transparency. Reforms are still needed regarding issues like bear/bull cartels, insider trading, and uniform settlement cycles.

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    harshad mehta and ketan parikh scam

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    This document discusses two major stock market scams in India led by Harshad Mehta in 1992 and Ketan Parekh in 1999-2001. It describes their fraudulent circular trading mechanisms used to artificially inflate stock prices. It discusses the impacts of the scams, which included sharp declines in market prices and capitalization, delays in economic reforms, and increased regulation of the stock market by the Securities and Exchange Board of India (SEBI). However, several other scams after Mehta still occurred, questioning SEBI's effectiveness at preventing market manipulation and enforcing transparency. Reforms are still needed regarding issues like bear/bull cartels, insider trading, and uniform settlement cycles.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    452 views6 pages

    Harshad Mehta and Ketan Parikh Scam

    Uploaded by

    Ankur Madaan
    This document discusses two major stock market scams in India led by Harshad Mehta in 1992 and Ketan Parekh in 1999-2001. It describes their fraudulent circular trading mechanisms used to artificially inflate stock prices. It discusses the impacts of the scams, which included sharp declines in market prices and capitalization, delays in economic reforms, and increased regulation of the stock market by the Securities and Exchange Board of India (SEBI). However, several other scams after Mehta still occurred, questioning SEBI's effectiveness at preventing market manipulation and enforcing transparency. Reforms are still needed regarding issues like bear/bull cartels, insider trading, and uniform settlement cycles.

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    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 6

    Harshad Mehta: The Big Bull Gone Wild

    Mehtas Trade Mechanism


    Fake BRs
    issued

    Bank A

    Promised to pay on Day 2 &


    presented BRs

    Issued Govt. Bonds


    taken from Bank B

    Sold Govt. Bonds on


    Day 1

    Issued cheques favouring


    Broker on Day 1

    Repaid money taken


    from Bank C on Day 2

    Broker

    Promised to pay on Day 3 & presented


    BRs

    Issued Govt. Bonds


    taken from Bank D

    Bank C

    Bank D
    Sold Govt. Bonds on
    Day 2

    Issued cheques favouring


    Broker on Day 2

    Excess Funds on hands


    channelised towards buying
    stocks

    Stock Markets
    Sources: topcafirms.com, BusinessToday; Note: RF Deal: Secured short term loan from one bank to another; BR: Acts as receipt for the money received by the selling Bank

    Buyer of Securities

    Seller of Securities

    Bank B

    Seller of Securities

    Buyer of Securities

    Bank X

    Ketan Parekh: Scam led by a Pentafour Bull

    Circular Trading Mechanism


    D sells same
    stock to KP

    KP Sells stock
    to Trader A

    Price Rigging

    Stock Price

    C sells same
    stock to Trader D

    B sells same
    stock to Trader C

    A sells same stock


    to Trader B

    The Story Continues.


    Parekh was convicted in 2008 for being involved in engineering the technology stocks scam in 1999-2001
    Also convicted with one year imprisonment for the transaction he conducted in the 1992 stock scam, involving a unit of Canara Bank
    Out of the Rs. 800 crore liability payable towards Madhavpura Bank, Parekh repaid 50% of the amount
    Currently, he is serving a period of disqualification from trading in the Indian bourses till 2017
    However, Parekh is still very much active in the stock market through Benami entities and never left the markets in the first place
    As per the Intelligence Bureau Report, recently his cartel was involved in rigging share prices of many stocks
    Sources: Reuters, BusinessToday, DNA; Note: Circular Trading: trade done by a group of people among themselves to rig the share price

    Comparative Analysis of Both Scams

    Sources: http://flame.org.in/knowledgecenter/scam.aspx

    Impact on Stock Markets and Indian Economy


    The immediate impact of these scams were
    sharp fall in the share prices and indices
    Post Harshad Mehta Scam, markets lost Rs.
    0.1mn crore loss in market capitalisation
    The Governments liberalization policies came
    under severe criticism
    Subsequently, these policies were put on hold
    for a while
    SEBI, the securities market regulator,
    postponed sanctioning of private sector mutual
    funds
    The entry of much talked about foreign
    pension funds and mutual funds became the
    remotest possibility
    The Euro-issues planned by many
    Cos. Were delayed
    Sources: http://www.slideshare.net/

    Indian

    Measures taken by SEBI against scams


    Securities and Exchange Board of India (SEBI) was established in April 88
    Established with an objective of protecting the rights of small investors and
    regulating and developing the stock market in India
    Post Mehta Scam in 1992, the GoI passed SEBI Act 1992 and conferred
    statutory powers to it

    Sources: icmrindia.org; Note: ALBM: Automated Lending and Borrowing Mechanism; BLESS: Borrowing and Lending of Securities Scheme

    Has SEBI lived up to its purpose??!


    While Mehta scam empowered SEBI to regulate markets more effectively,
    several other scams forced it to ensure that markets operate transparently
    and efficiently
    However, post Mehta scam, several scams came to light, casting doubt on
    the efficiency of SEBI as a regulatory body
    Although many reforms are introduced by SEBI, there remains significant
    lapses in the law implementation and enforcement
    Certain areas wherein SEBI needs to
    think upon and take action includes:
    Bear/Bull Cartels
    Insider Trading
    Circular Trading
    Uniform settlement cycle
    A few actions taken by SEBI were
    criticized of it being clueless about its
    supervisory duties
    Its high time that market regulators implement appropriate measures else the
    ghost from past will continue haunting the Indian bourses
    Sources: indianblogger.com, ismb-blogspot.in, icmrindia.org

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