Harshad Mehta Scam India Compilation

Sebi debars Harshad Mehta from securities dealing; BPL, Videocon, Sterlite restricted

On Thursday, Sebi barred Harshad Mehta from dealing in securities. It also prohibited BPL Limited, Videocon International and Sterlite Industries from accessing the capital market for four, three and two years respectively. It also ordered prosecution proceedings against all the above parties.

Sebi finished its investigations into the alleged price manipulations in the scrips of BPL, Videocon and Sterlite in 1998.

Sebi completed its investigations in three stages. In the first stage, it found that a set of brokers and sub brokers acting on behalf of a common set of clients who were acting as a front for Harshad Mehta cornered large chunk of shares of Videocon, BPL and Sterlite. This cornering led to price manipulation and the scrip prices rose substantially. Sebi suspended 17 brokers (10 of BSE and 7 of NSE) for periods ranging from one to three years. Several other brokers were given lesser punishment.

In the second stage, it asked the then BSE president J C Parekh to relinquish office. The BSE vice president Rajendra Banthia resigned following investigations. Later investigations were completed against Harshad Mehta and BPL, Videocon and Sterlite by October 1999.

It then issued show cause notices to them in December 1999. Sebi was then required to hear these cases in quasi-judicial manner. After inspecting the documents and cross-examining the witnesses, Sebi passed the following orders on April 19, 2001.

It debarred Harshad Mehta from dealing in securities under Section 11 and 11B of Sebi Act, read with Regulation 11 of Sebi (Prohibition of Fraudulent and Unfair Trade Practices for dealing in securities) Regulations. His prosecution has also been ordered under section 24 of Sebi Act.

BPL Limited, Videocon International and Sterlite Industries have been debarred from accessing the capital market for a period of four, three and two years respectively under section 11 and 11B of the Sebi Act. Prosecution proceedings of the three companies and some of their directors has also been ordered under section 24 of Sebi Act for violation of Sebi Act and Sebi (Prohibition of Fraudulent and Unfair Trade Practices for dealing in securities) Regulations.

How Harshad Mehta did it again

April 24, 2001

Flashback to March 1992: Harshad Mehta was the darling of the stock markets -- a superstar whose popularity had begun to rival that of a matinee star. He was the cover story on several magazines and was being shot by audio-visual newsmagazines symbolically feeding peanuts to bears at the Bombay zoo.

April 23, 1992: Almost exactly nine years ago, the story began to fall apart with the revelation that Harshad had helped himself to a cool Rs 5 billion from State Bank of India by making a SGL receipt vanish.

June 1998: It is the astounding story of an irrepressible and ambitious Harshad Mehta attempting to cock a snook at the system, which tried to tie him down in 35-odd court cases and re-work his charismatic magic with investors. Fortunately for Indian investors, the comeback died a quick death.

Harshad had made his plans carefully. He anticipated the Internet as a powerful tool and launched his own website -- www.harshad.com to dispense stock tips and analyse market trends. A set of media managers then set him up with columns in several leading newspapers.

The next step was to convince a set of companies to collaborate with him in ramping up their prices and find several legitimate brokers to put through his trades.

Sebi's investigation reveals that a set of brokers was happy to deal with these unknown companies with no financial standing or professional expertise and without taking any security or deposit, only because of their faith in the Harshad Mehta magic. BPL, Videocon and Sterlite were lured by Harshad's sales pitch and by February 1998, the market was buzzing about the 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, 232 per cent and 41 per cent respectively, even while the bellwether BSE Sensex declined 11 per cent due to various domestic and international factors.

But April 1998 was very different from April 1992. Harshad had limited access to funds, his trading cards were suspended. More importantly, he needed to create a large network of front companies to do his business. Sebi refers to these as the Damayanti Group. The companies included Damayanti Finvest, CDP Fincap and Leasing, KRN Finvest and Leasing, Rijuta Finvest and Ikshu Finvest which operated through a set of brokers and sub-brokers who did Harshad's