Wikipedia defines Harshad M Mehta as an Indian stockbroker, well known for his wealth and for having been charged with numerous financial crimes that took place in 1992. He was born in year 1960 and died on December 31, 2001, Mumbai and is having a child by name as Atur Mehta.
Harshad Mehta also known as the big bull of the market during the period 1990-92 and used many loopholes in the financial system to funnel out money which he then used to finance his stock purchases. The idea was simple – create massive demand for a stock by buying every share that’s available in the market – any price paid. This will necessarily take the share price soaring, which is when you may sell it. He used following loopholes in the market.
He used the loophole of SLR (Statutory Liquidity Ratio). Like today, back in the 90’s banks had to maintain an SLR. Accordingly a certain percentage of bank’s assets, i.e. cash, were mandatorily to be invested in government bonds and securities. Back then computer technology was not as good as it is today, and the amount kept as SLR had to be manually monitored. This was done on any one day of the week, mostly on Fridays. This allowed banks to sell the bonds on a Monday and buy it back before the date of monitoring – i.e. Friday. This could free up substantial cash for the bank to play with during the week. But again buying back was something that was done through a broker for a broker would know which bank had excess government bonds and which one was short on it. Such broker would act as a middleman to balance the positions.
Harshad was one such broker / middleman. He won the trust of many banks. So much so that the bank’s started writing checks in his name trusting him to balance positions. This left a lot of short term spare capital with Harshad to play with. He used this to inflate the prices of many shares rose dramatically, most noticeably of Associated Cement Company (ACC) which rose by 4400 % from Rs. 200 to Rs. 9000. While the scam was exposed and Harshad faced several cases of civil and criminal fraud, the truth is that till date the IT department is unaware of how much money Harshad Mehta amassed during this scam and is not sure about where that money is lying today. Legend has it that he and his associate companies till date are holding approximately 10% of ACC.
Harshad died of a heart attack in 2002 while he was in prison. He was 47 years old. So moral of the story is that ill gotten wealth goes down the drain.
Had it not been for the scam the Indian stock market may not have had been so robust and RBI may not have had been able to have such strict policies which helped us to tide over the crisis during financial meltdown in the whole world.
It is worth mentioning that despite so many years having been passed but still people are searching for him on search engines using words as below and we have tried to answer all the queries through this post.
