“Harshad Mehta scam.”

The Harshad Mehta scam, also known as the 1992 Indian securities scam or the Securities Scam of 1992, was one of the most significant financial scandals in the history of India. It revolved around Harshad Mehta, a stockbroker from Mumbai who manipulated the stock market to siphon off funds from the banking system, resulting in a major financial crisis. Here are the key details of the scam:

1. Manipulation of the Stock Market: Harshad Mehta used a fraudulent technique known as “circular trading” to inflate the prices of certain stocks. He purchased large quantities of select shares, artificially driving up their prices, and then used these inflated prices as collateral to obtain massive loans from banks.

2. Fake Bank Receipts: To secure these loans, Mehta and his associates issued fake bank receipts and manipulated the banking system to make it appear as though they had large sums of money in their accounts. These receipts were then used as collateral to borrow more money.

3. Diversion of Funds: Mehta and his accomplices used the borrowed funds to invest in the stock market, which further inflated stock prices. They also used the money for personal investments and to repay previous loans, creating a complex web of financial transactions.

4. The Expose: The scam was eventually uncovered in 1992 when journalist Sucheta Dalal, along with her husband Debashis Basu, published a series of articles in the newspaper “The Times of India” that exposed the irregularities in Mehta’s transactions.

5. Fallout and Legal Proceedings: The scam led to a severe stock market crash in 1992, causing significant losses for many investors. Harshad Mehta and several others were arrested, and legal proceedings were initiated against them.

6. Reforms and Regulatory Changes: The Harshad Mehta scam exposed weaknesses in India’s financial and regulatory systems. In its aftermath, there were efforts to reform and strengthen the country’s financial regulatory framework, leading to the establishment of regulatory bodies like the Securities and Exchange Board of India (SEBI) to better monitor and regulate the securities market.

7. Legal Outcomes: Harshad Mehta faced multiple legal cases and spent time in jail. He passed away in 2001 while still facing legal proceedings related to the scam. Other individuals involved in the scam also faced legal consequences to varying degrees.

The Harshad Mehta scam served as a wake-up call for the Indian financial system, prompting significant reforms and increased vigilance in the securities market. It remains a notable chapter in India’s financial history, highlighting the importance of regulatory oversight and the potential consequences of financial fraud and manipulation.


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