HARSHAD MEHTA- THE BIGBULL INTRODUCTION Harshad Mehta was an Indian stockbroker caught in a scandal beginning in1992.

Harshad Shantilal Mehta was born in a Gujarati jain family of modestmeans. His father was a small businessman. His early childhood was spent inthe industrial city of Bombay. Due to indifferent health of Harshads father inthe humid environs of Bombay, the family shifted their residence in the mid-1960s to Raipur, then in Madhya Pradesh and currently the capital of Chattisgarh state. While doing odd jobs he joined Lala Lajpat Rai College fora Bachelors degree in Commerce.After completing his graduation, Harshad Mehta started his working life as anemployee of the New India Assurance Company. During this period his familyrelocated to Bombay and his brother Ashwin Mehta started to pursuegraduation course in law at Lala Lajpat Rai College. After his graduationAshwin joined (ICICI) Industrial Credit and Investment Corporation of India. They had rented a small flat in Ghatkopar for living. In the late seventiesevery evening Harshad and Ashwin started to analyze tips generated fromrespective offices and from cyclostyled investment letters, which had madetheir appearance during that time.In the early eighties he quit his job and sought a job withstock brokerP.Ambalal affiliated to BombayStock Exchange(BSE) before becoming a jobber on BSE for stock broker P.D. Shukla.In 1981 he became a sub-broker for stock brokers J.L. Shah and NandalalSheth. After a while he was unable to sustain his overbought positions anddecided to pay his dues by selling his house with consent of his motherRasilaben and brother Ashwin. The next day Harshad went to his brokers andoffered the papers of the house as guarantee. The brokers Shah and Shethwere moved by his gesture and gave him sufficient time to overcome hisposition. After he came out of this big struggle for survival he becamestronger and his brother quit his job to team with Harshad to start theirventure GrowMore Research and Asset Management Company Limited.While a brokers card at BSE was being auctioned, the company made a bidfor the same with financial assistance from Shah and Sheth, who wereHarshad's previous broker mentors. He rose and survived the bear runs, thisearned him the nickname of the Big Bull of the trading floor, and his actions,actual or perceived, decided the course of the movement of the Sensex aswell as scripspecific activities. By the end of eighties the media startedprojecting him as "Stock Market Success", "Story of Rags to Riches" and he

too started to fuel his own publicity. He felt proud of this accomplishmentsand showed off his success to journalists through his mansion "Madhuli",which included a billiards room, mini theatre and nine hole golf course. Hisbrand new Toyota Lexusand a fleet of cars gave credibility to his show off. This in no time made him the nondescript broker to super star of financialworld.

During his heyday, in the early 1990s, Harshad Mehta commanded alarge resource of funds and finances as well as personal wealth. WHAT WENT WRONG? Harshad Mehta was the darling of the stock markets -- a superstar whosepopularity had begun to rival that of a matinee star. He was the cover storyon several magazines and was being shot by audio-visual newsmagazinessymbolically feeding peanuts to bears at the Bombay zoo. The fall In April 1992, the Indian stock market crashed, and Harshad Mehta,the person who was all along considered as the architect of the bull run wasblamed for the crash. It transpired that he had manipulated the Indianbanking systems to siphon off the funds from the banking system, and usedthe liquidity to build large positions in a select group of stocks.In the early 1990s, the banks in India had to maintain a particular amount of their deposits in government bonds. This ratio was called SLR ( StatutoryLiquidity Ratio). Each bank had to submit a detailed sheet of its balance atthe end of the day and also show that there was a sufficient amount investedin government bonds. Now, the government decided that the banks need notshow their details on each day, they need to do it only on Fridays. Also, therewas an extra clause that said that the average %age of bond holdings overthe week needs to be above the SLR but the daily %age need not be so. Thatmeant that banks would sell bonds in the earlier part of the week and thenbuy 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 bankswould be desperate to buy bonds back. This is where the broker comes in. The broker knew which bank had more bonds (called plus) and which hasless than the required amount (called short). He then acts as themiddleman between the two banks. Harshad Mehta was one such broker. Heworked as a middle man between many banks for a long time and gained thetrust of the banks senior management. Lets say that there are two banks A(short) and B (plus). Now what Harshad Mehta did was that he told thebanker at A that he was dealing with many banks and hence did not knowwho would he deal in the end with. So he said that the bank should write thecheque in his name rather than the other bank (which was forbidden by law),so that he could make the payment to whichever bank was required. Since

he was a trusted broker, the banks agreed. Then, going back to the exampleof bank A and B, he took the money from A and went to B and said that hewould pay the money on the next day to B but he needed the bonds rightnow (for A). But he offered a 15 % return for bank B for the one dayextension. Bank B readily agreed with this since it was getting such a nicereturnNow since Harshad Mehta was dealing with many banks at the same time hecould then keep some capital with him at all times. For eg. He takes moneyfrom A on Monday, and tells B that hell pay on Tuesday, then he takesmoney from C on Tuesday and tells D that hell pay on Wednesday and

themoney he gets from C is paid to B and as a result he has some workingcapital with him at all times if this goes on with other banks throughout theweek. The banks at that time were not allowed to invest in the equitymarkets. Harshad Mehta had very cleverly squeezed some capital out of thebanking system. This capital he invested in the stock market and managedto stoke a massive boom. The story began to fall apart with the revelation that Harshad had helpedhimself to a cool Rs 5 billion from State Bank of India by making a SGLreceipt vanish. SEBI UNFLODED THE MYSTERY It is the astounding story of an irrepressible and ambitious Harshad Mehtaattempting to cock a snook at the system, which tried to tie him down in 35-o d d c o u r t c a s e s a n d r e w o r k h i s c h a r i s m a t i c m a g i c w i t h i n v e s t o r s . Fortunately for Indian investors, the comeback died a quick death.Harshad had made his plans carefully. He anticipated the Internet as apowerful tool and launched his own website -- www.harshad.com to dispensestock tips and analyse market trends. A set of media managers then set himup with columns in several leading newspapers. The next step was to convince a set of companies to collaborate with him inramping up their prices and find several legitimate brokers to put through histrades.Sebi's investigation reveals that a set of brokers was happy to deal witht h e s e u n k n o w n c o m p a n i e s w i t h n o f i n a n c i a l s t a n d i n g o r p r o f e s s i o n a l expe rtise and without taking any security or deposit, only because of their faith in the Harshad Mehta magic. BPL, Videocon and Sterlite were lured byHarshad's sales pitch and by February 1998, the market was buzzing aboutthe return of the Big Bull. Sebi's investigations show that from April to June 4,1998, BPL, Videocon and Sterlite's scrip prices moved up 137 per cent, 232per cent and 41 per cent respectively, even while the bellwether BSE Sensexdeclined 11 per cent due to various domestic and international factors.But April 1998 was very different from April 1992. Harshad had limitedacce ss to funds, his trading cards were suspended. More importantly, he needed to create a large network of front companies to do his business. Sebirefers to these as the Damayanti Group. The companies included DamayantiFinvest, CDP Fincap and Leasing, KRN Finvest and Leasing, Rijuta Finvest and Ikshu Finvest which operated through a set of brokers and sub-brokers whodid Harshad's bidding.A l l t h e s e c o m p a n i e s h a d t h e s a m e a d d r e s s : 1 2 0 8 M a k e r C h a m b e r s V , N ariman Point, Bombay 400 021 -- once famous as Harshad's nerve centreand the office of Growmore Research & Asset Management Ltd.He also started another set of companies in keeping with his plans. Theyw e r e M o n e y T e l e v i s i o n I n d u s t r i e s , E s q u i r e I n t e r n a t i o n a l , S t a r s h a r e Investment and Finanz, Stable Constructions and New Prabhav Finvest. The Damayanti group began to face payment difficulties and papered thisover by rolling their positions from one bourse to another and transferringpositions among brokers though a system of kaplis or credit notes. (This wasa loophole for manipulation, which has since been plugged).Sebi says the Bombay Stock Exchange, which was perfectly aware

aboutH a r s h a d 's s h e n a n i g a n s , n o t o n l y f a i l e d t o t a k e " e f f e c t i v e s u r v e i l l a n c e m easures", but also lowered margins in these scrips and later tried to bailhim and his brokers out by arm-twisting companies to cover the paymentdefault. They also opened the trading system in the middle of the night toinsert synchronised trades at prices that were completely out of line with theday's trading.When the payment crisis hit the market, it was common knowledge tha tHarshad had gone broke. Newspapers wrote about it, but Sebi's job was tot r a c k h i s f r o n t c o m p a n i e s a n d t o l i n k t h e m t o h i m . T h a t w a s a t o u gh proposit ion, since Sebi has limited powers of search and seizure. At everystage, Harshad's people fudged their answers, refused to co-operate andtried to cover their tracks. Yet, the 1999 investigation was complete.Sebi found that four persons -- Anil Doshi, Dinesh Doshi, Dilip Shah and VinodShah -- were directors of the Damayanti group in various permutations andcombinations. The first two were his wife's brothers. The latter two claimedthey were just salaried employees and had carried out orders. Pankaj Shah,Sunil Samtani and Atul Parikh, who were coaccused with Mehta in 1992,were also an important part of the front operators.After searches at the Damayanti offices, Sebi established links to Harshadthrough telephone bills, payment to lawyers, investment details and brokerssuch as LKP Securities and Digital Leasing. Travel bills found at Harshad's office were key to linking the Mehtas. Thoughthe bills and invoices of the two travel agencies -- Taurus Travels and Bonik T r a v e l s - were fudged to show purchases in the names of company employees, Sebi managed to verify through the airlines that it was HarshadMehta, his family and associates who had actually traveled on the tickets.It also found payments to the tune of Rs 1.4 million made from the frontcompanies to Harshad's lawyers Mahesh Jethmalani, S D Jaisinghani, andChougle & Co when they had sought no legal advice from them.Sebi also tracked telephone calls from the Damayanti group to senior BPLexecutives such as its director T C Chauhan, who admitted he had made thecalls to Harshad at the Damayanti group offices.Sebi hit pay dirt when it found a document from the Damayanti office whichlisted details of investments of Rs 1.46 billion in BPL, Videocon and Sterlite inthe second week of June, which pertained to the BSE and NSE settlements of that period. The document also connected Harshad Mehta's activities to a series of broke rs -- El Dorado Guarantee, Dil Vikas Finance, LKP Securities, MadhukarSheth, Sony Securities and GNH Global Securities. Of these, Madhukar Shethand LKP have figured prominently in the 2001 debacle too.S S Gulati of LKP Shares and Stockbrokers and Digital Leasing, which hadtried to recover money from Harshad Mehta, provided further corroboration.Shrenik Jhaveri and Bharat Khona were two other brokers who informed Sebithat Harshad had delivered a large quantity of BPL shares to them throughthe front companies in lieu of old liabilities. T h e k e y t o M e h t a 's m a r k e t m a n i p u l a t i o n s w e r e h i s d e a l i n gs w i t h B P L, Videocon and Sterlite which were finally barred last week from accessing thecapital market for four, three and two years respectively.Sebi discovered that these companies lent Harshad the initial

money to buildup concentrated position in these counters. The outstanding purchases wereparticularly heavy at the end of each settlement period in order to provideprice benchmarks for the next settlement. In fact, at one stage the brokersoperating in BPL for the Damayanti group accounted for 70 per cent of thetotal outstanding position of the scrip on the BSE -- a clear indicator that theBSE was studiously turning a blind eye to their activities.Interestingly, another set of brokers operating on the NSE took delivery of 70per cent of the total delivery for BPL in settlement no 22 of 1998 -- indicatinghow positions were rolled over from on bourse to another. Exactly the sameoperation was replicated in Videocon and Sterlite as well.Having established that the Damayanti Group was set up by Harshad Mehta,the rest was easy. The three corporate houses did not even cover their tracks as we show in the next two parts. As Sebi points out, such cornering of shares and price manipulation created an artificial market that ultimately ledto the collapse and was detrimental to the interest of investors in general. CONCLUSION When the scam broke out, he was called upon by the banks and the financiali n s t i t u t i o n s t o r e t u r n t h e f u n d s , w h i c h i n t u r n s e t i n t o m o t i o n a c h a i n reaction, necessitating liquidating and exiting from the positions which he had built in various stocks. The panic reaction ensued, and the stock market reacted and crashed withindays. He was arrested on June 5, 1992 for his role in the scam. His favoritestocks includedACC Apollo Tyres Reliance Tata Iron and Steel Co. (TISCO) BPL Sterlite Videocon. T h e e x t e n t T h e H a r s h a d M e h t a i n d u c e d s e c u r i t y s c a m , a s t h e m e d i a s ometimes termed it, adversely affected at least 10 major commercial banksof India, a number of foreign banks operating in India, and the National Housing Bank, a subsidiary of the Reserve Bank of India, which is the centralbank of India. As an aftermath of the shockwaves which engulfed the Indianfinancial sector, a number of people holding key positions in the India'sfinan cial sector were adversely affected, which included arrest and sacking of K. M. Margabandhu, then CMD of the UCO Bank; removal from office of V.Mahadevan, one of the Managing Directors of Indias largest bank, the StateBank of India. T h e e n d T h e C e n t r a l B u r e a u o f In v e s t i g a t i o n w h i c h i s In d i a s p r e m i e r in vestigative agency, was entrusted with the task of deciphering the modusoperandi and the ramifications of the scam. Harshad Mehta was arrested andinvestigations continued for a decade. During his judicial custody, while hewas in Thane Prison, Mumbai, he complained of chest pain, and was movedto a hospital, where he died on 31st December 2001. His death remains amystery.Some believe that he was murdered ruthlessly by an underworld nexus(spa nning several South Asian countries including Pakistan). Rumour has itt h a t t h e y s u s p e c t e d t h a t p a r t o f t h e h u g e w e a l t h t h a t H a r s h a d M e h t a comman ded at the height of the 1992 scam was still in safe hiding andt h o u g h t t h a t t h e o n l y w a y t o e x t r a c t t h e i r s h a r e o f t h e ' l o o t ' w a s t o p r e s s u r i s e H a r s h a d ' s f a m i l y b y t h r e a t e n i n g h i s v e r y e x i s t e n c e . In t h i s context, it might be noteworthy that a certain criminal allegedly connectedwith this nexus had inexplicably surrendered just days after Harshad wasmoved to Thane Jail and landed up

in imprisonment in the same jail, in thecell next to Harshad Mehta's. Mumbai: Just as the year 2001 was coming toan end, Harshad Shantilal Mehta, boss of Growmore Research and AssetManagement, died of a massive heart attack in a jail in Thane.And thus came to an end the life of a man who is probably the most famouscharacter ever to have emerged from the Indian stock market. In the book, The Great Indian Scam: Story of the missing Rs 4,000 crore, Samir K Baruaand Jayanth R Varma explain how Harshad Mehta pulled off one of the mostaudacious scams in the history of the Indian stock market. Harshad ShantilalM e h t a w a s b o r n i n a G u j a r a t i J a i n f a m i l y o f m o d e s t m e a n s . H i s e a r l yc hildhood was spent in Mumbai where his father was a smallt i m e businessman. Later, the family moved to Raipur in Madhya Pradesh afterd o c t o r s a d v i s e d h i s f a t h e r t o m o v e t o a d r i e r p l a c e o n a c c o u n t o f h i s indiff erent health.

Harshad Mehta known to be Big Bull of the trading floor was an Indian stockbroker and is alleged to have engineered the rise in the BSE stock exchange in the year 1992.He and his associates draw off funds from inter-bank transactions and bought shares heavily at a premium across many segments,triggering a rise in the Sensex. When the scheme was exposed, the banks started demanding the moneyback, causing the collapse. The broker was dipping illegally into the banking system to finance hisbuying. The amount that was involved in this scam was approx. to Rs 5000 crs.Harshad Mehta was an Indian stockbroker caught in a scandal beginning in 1992. He died of a massiveheart attack in 2001, while the legal issues were still being litigated. Early life Harshad Shantilal Mehtawas born in a Gujarati jain family of modest means. His father was a small businessman. His mother'sname was Rasilaben Mehta. His early childhood was spent in the industrial city of Bombay. Due to indifferent health of Harshads father in the humid environs of Bombay, the family shifted their residence in the mid-1960s to Raipur, then in Madhya Pradesh and currently the capital of Chattisgarhstate. An Amul advertisement of 1999 during the conterversy over MUL saying it as "The Big Bhool"(Bhool in Hindi means Blunder) He studied at the Holy Cross High School, located at Byron Bazaar. Aftercompleting his secondary education Harshad left for Bombay. While doing odd jobs he joined Lala Lajpat Rai College for a Bachelors degree in Commerce After completing his graduation, Harshad Mehta started his working life as an employee of the NewIndia Assurance Company. During this period his family relocated to Bombay and his brother AshwinMehta started to pursue graduation course in law at Lala Lajpat Rai College. His youngest brother Hiteshis a practising surgeon at the B.Y.L.Nair Hospital in Bombay. After his graduation Ashwin joined (ICICI)Industrial Credit and Investment Corporation of India. They had rented a small flat in Ghatkopar forliving. In the late seventies every evening Harshad and Ashwin started to analyze tips generated fromrespective offices and from cyclostyled investment letters, which had made their appearance during thattime. In the early eighties he quit his job and sought a job with stock broker P. Ambalal affiliated toBombay Stock Exchange (BSE) before becoming a jobber on BSE for stock broker P.D. Shukla. In 1981 hebecame a sub-broker for stock brokers J.L. Shah and Nandalal Sheth. After a while he was unable tosustain his overbought positions and decided to pay his dues by selling his house with consent of hismother Rasilaben and brother Ashwin. The next day Harshad went to his brokers and offered the papersof the house as guarantee. The brokers Shah and Sheth were moved by his gesture and gave himsufficient time to overcome his position. After he came out of this big struggle for survival he becamestronger and his brother quit his job to team with Harshad to start their venture GrowMore Researchand Asset Management Company Limited. While a brokers card at BSE was being auctioned, thecompany made a bid for the same with financial assistance from Shah and Sheth, who were Harshad'sprevious broker mentors. He rose and survived the bear runs, this earned him the nickname of the BigBull of the trading floor, and his actions, actual or perceived, decided the course of the movement of theSensex as well as scrip-specific activities. By the end of eighties the media started projecting him as"Stock Market Success", "Story of Rags to Riches" and he too started to fuel his own publicity. He feltproud of this

accomplishments and showed off his success to journalists through his mansion "Madhuli",which included a billiards room, mini theatre and nine hole golf course. His brand new Toyota Lexus anda fleet of cars gave credibility to his show off. This in no time made him the nondescript broker to super star of financial world. During his heyday, in the early 1990s, Harshad Mehta commanded a largeresource of funds and finances as well as personal wealth.The fall In April 1992, the Indian stock market crashed, and Harshad Mehta, the person who was allalong considered as the architect of the bull run was blamed for the crash. It transpired that he hadmanipulated the Indian banking systems to siphon off the funds from the banking system, and used theliquidity to build large positions in a select group of stocks. When the scam broke out, he was calledupon by the banks and the financial institutions to return the funds, which in turn set into motion achain reaction, necessitating liquidating and exiting from the positions which he had built in variousstocks. The panic reaction ensued, and the stock market reacted and crashed within days.He wasarrested on June 5, 1992 for his role in the scamHis favorite stocks included ACC Apollo Tyres Reliance Tata Iron and Steel Co. (TISCO) BPL Sterlite Videocon The extent The Harshad Mehta induced security scam, as the media sometimes termed it, adverselyaffected at least 10 major commercial banks of India, a number of foreign banks operating in India, andthe National Housing Bank, a subsidiary of the Reserve Bank of India, which is the central bank of India.As an aftermath of the shockwaves which engulfed the Indian financial sector, a number of peopleholding key positions in the India's financial sector were adversely affected, which included arrest andsacking of K. M. Margabandhu, then CMD of the UCO Bank; removal from office of V. Mahadevan, one of the Managing Directors of Indias largest bank, the State Bank of India. The end The Central Bureau of Investigation which is Indias premier investigative agency, was entrusted with the task of deciphering the modus operandi and the ramifications of the scam. Harshad Mehta was arrested and investigationscontinued for a decade. During his judicial custody, while he was in Thane Prison, Mumbai, hecomplained of chest pain, and was moved to a hospital, where he died on 31st December 2001. Hisdeath remains a mystery. Some believe that he was murdered ruthlessly by an underworld nexus(spanning several South Asian countries including Pakistan). Rumour has it that they suspected that partof the huge wealth that Harshad Mehta commandedat the height of the 1992 scam was still in safehiding and thought that the only way to extract their share of the 'loot' was to pressurise Harshad'sfamily by threatening his very existence. In this context, it might be noteworthy that a certain criminal allegedly connected with this nexus had inexplicably surrendered just days after Harshad was moved toThane Jail and landed up in imprisonment in the same jail, in the cell next to Harshad Mehta's.Mumbai: Just as the year 2001 was coming to an end, Harshad Shantilal Mehta, boss of GrowmoreResearch and Asset Management, died of a massive heart attack in a jail in Thane. And thus came to anend the life of a man who is probably the most famous character ever to have emerged from the Indianstock market. In the book, The Great Indian Scam: Story of the missing Rs 4,000 crore, Samir K Barua andJayanth R Varma explain how Harshad Mehta pulled off one of the most audacious scams in the historyof the Indian stock market.Harshad Shantilal Mehta was born in a Gujarati Jain family of modest means. His early childhood wasspent in

Mumbai where his father was a small-time businessman. Later, the family moved to Raipur inMadhya Pradesh after doctors advised his father to move to a drier place on account of his indifferenthealth. But Raipur could not hold back Mehta for long and he was back in the city after completing his schooling, much against his fathers wishes. Mehta first started working as a dispatch clerk in the New India Assurance Company. Over the years, he got interested in the stock markets and along with brotherAshwin, who by then had left his job with the Industrial Credit and Investment Corporation of India,started investing heavily in the stock market. As they learnt the ropes of the trade, they went fromboom to bust a couple of times and survived. Mehta gradually rose to become a stock broker on theBombay Stock Exchange, who did very well for himself. At his peak, he lived almost like a movie star in a15,000 square feet house, which had a swimming pool as well as a golf patch. He also had a taste forflashy cars, which ultimately led to his downfall. Newsmakers of the week: View Slideshow The year was 1990. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realised. Harshad Mehta was making waves inthe stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC), write the authors. T he price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as anexplanation. The theory basically argues that old companies should be valued on the basis of theamount of money which would be required to create another such company. Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the Big Bull, who was said to have started the bull run. But, where was Mehta getting his endless supply of money from?Nobody had a clue. On April 23, 1992, journalist Sucheta Dalal in a column in The Times of India,exposed the dubious ways of Harshad Metha. The broker was dipping illegally into the banking systemto finance his buying. In 1992, when I broke the story about th e Rs 600 crore that he had swiped fromthe State Bank of India, it was his visits to the banks headquarters in a flashy Toyota Lexus that wa s thetip-off. Those days, the Lexus had just been launched in the international market and importing it cost anea t package, Dalal wrote in one of her columns later. The authors explain: The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a securedshort-term (typically 15-day) loan from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery.The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at aslightl y higher price. It was this ready forward deal that Harshad Mehta and his cronies used with great

success to channel money from the banking system. A typical ready forward deal involved two banksbrought together by a broker in lieu of a commission. The broker handles neither the cash nor thesecurities, though that wasnt the case in the leadup to the scam. In this settlement process, deliveries of securities and payments were madethrough the broker. That is, the seller handed over the securitiesto the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who thenmade the payment to the seller. In this settlement process, the buyer and the seller might not evenknow whom they had traded with, either being know only to the broker. This the brokers could manage primarily because by now they had become market makers and had started trading on theiraccount. To keep up a semblance of legality, they pretended to be undertaking the transactions onbehalf of a bank. Another instrument used in a big way was the bank receipt (BR). In a ready forwarddeal, 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. As the authors write, 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 thesecurities i n trust of the buyer. Having figured this out, Metha 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 Metorpolitan Co-operative Bank (MCB) - came in handy for this purpose.Thesebanks were willing to issue BRs as and when required, for a fee, the authors point out. Once these fakeBRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta,obviously assuming that they were lending against government securities when this was not really thecase. This money was used to drive up the prices of stocks in the stock market. When time came toreturn the money, the shares were sold for a profit and the BR was retired. The money due to the bankwas returned. The game went on as long as the stock prices kept going up, and no one had a clue about Mehtas modus operandi. Once the scam was exposed, though, a lot of banks were left holding BRs which did nothave any value - the banking system had been swindled of a whopping Rs 4,000 crore. Mehta made abrief comeback as a stock market guru, giving tips on his own website as well as a weekly newspapercolumn. This timearound, he was in cahoots with owners of a few companies and recommended onlythose shares. This game,too, did not last long. Interestingly, however, by the time he died, Mehta hadbeen convicted in only one of the many cases filed against him. How Harshad Mehta financed his deals? Harshad Mehta worked on the mechanism of READY FORWARD (RF) DEALS. It's a secured short-term(typically 15-day) loan from one bank to another. The bank lends against government securities. Theborrowing bank actually sells the securities to the lending bank and buys them

back at the end of theperiod of the loan, typically at a slightly higher price. The deal was done between the banks throughbrokers for commissions. In this settlement process, deliveries of securities and payments were madethrough the broker. That is, the seller handed over the securities to the broker, who passed them to thebuyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. Thus both the parties may not know each other. It was this idea that made the mind of Harshad to involveinto the modus operandi. Harshad in his scam took the help of Bank Receipts. 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 promises to deliver the securities tothe buyer and the seller holds the securities in trust of the buyer.Having figured this out, Mehta needed banks, which issue fake BRs, or 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 handyfor this purpose. These banks were wil ling to issue BRs as and when required, for a fee. Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta,obviously assuming that they were lending against government securities when this was not really thecase. This money was used to drive up the prices of stocks in the stock market. When time came toreturn the money, the shares were sold for a profit and the BR was retired. The money due to the bankwas returned. The game went on as long as the stock prices kept going up, and no one had a clue aboutMehta's modus operandi. Once the scam was exposed though, a lot of banks were left holding BRswhich did not have any value - the banking system had been swindled of a whopping Rs 4,000 crore.