Book Review : The Scam : From Harshad Mehta To Ketan Parekh



About the Authors:

Debashis Basu is a Chartered Accountant since 1983, and has also worked in Business India, Business World, Financial Express, The Times Of India and Business Today. He is also a member of the Task Force of SEBI on the creation of IndoNext Market Segment

Sucheta Dalal majored in statistics and LLM. She has 22 years of investigative reporting behind her spanning the Harshad Mehta scam, CR Bhansali Scam, Enron, bad loans in banks, corporate investigative reports as well as regulatory lapses. She received the Chameli Devi award for outstanding journalism, and the Femina Woman of Substance award both in 1993. She is a member of the primary market advisory committee of SEBI


THE SCAM is more of an investigative report on the 2 defining stock market scams of recent times - 1991-1992, made famous by Harshad Mehta,, and the Ketan Parekh escapade of 2001. The report - for it is more of a report than a book - is exhaustive in its material, stunning in its scope and breadth and appears complete and irrefutable in its analysis and conclusions. This is not a book for beginners, to be very honest; a basic assumption is there of a working knowledge of stocks, stock markets, money markets and bank operations in addition to finance management basics.

The book covers every aspect of the scam in considerable detail, right from the document trail, to the fraudulent transactions, as well as movement in stock prices, coupon rates and interest rates, market deals, cartels and the interaction of the various players in the scam - the Brokers, Banks, Institutional Investors, Regulators, Politicians, Mutual Fund Houses - which serves to give depth and credibility to the investigation, as it leaves no parameter uncovered and no stone unturned in its attempt at arriving at the hidden truth. In particular, the attention to detail in just about every aspect of the investigation is worth a special mention. The attention given to even the most minute of circumstances, events and allegations throughout the book lends it considerable weight.

Fleshing out the numbers present in the book is a commendable attempt at character profiling of all  the major as well as quite a few of the minor players in the various scam, which elevates the book from a mere number-filled tedious exercise in criminal investigation to the level of an engaging, absorbing if somewhat slow read. By no stretch of imagination is this book a fast read; it requires concentration and a deep level of interest in the topic at hand to finish it. But for those interested in it, this book is a fact-filled, deeply absorbing and educational experience; far more than just a book. 

The mainstay of this investigation is the combination of numbers and strategies that has been used to lucidly put the point across. Stock price movements, coupon rates, transactions, positions have been covered in considerable detail,  leaving almost no doubt in your mind as to what happened. There are examples of specific deals given, with examination of stock prices / coupon rates prior to the deal as well as after the deals, the volume of money involved - combined with,  in some cases an attempt at tracing the money flow as well. This has been combined in an overall strategic analysis {if I can call it that!!!!!} of the strategies of the Banks, Brokers and Institutions involved in the scam - leading to an overall clear picture as to what transpired.

The book is ruthless on the Regulators- specifically our very own RBI, and asks some extremely tough questions from the central bank, including exposing glaring oversights and weaknesses in the operations of the RBI in the period 1986 - 2005, citing examples of internal reports highlighting problems,  as well as ham-handed investigations as well as glaring lethargy and moribund systems. It leads one to wonder if this is still the case? Some passages also lead one to wonder at the chances of a cover-up, and collusion of the various agencies. On the JPC, the brutal stripping is no surprise, since we Indians have come to expect nothing less and nothing more from our politicians. 

The book exposes the CBI in no uncertain terms, as it comes across as inept as well as, shall we say, externally handled - and mercilessly rips into its investigative efforts, taking pains to point out that at the end of it all, most of the perpetrators (almost all, in fact) got clean away. Not only that, the money that was lost remains lost and untraceable, which makes a joke of the entire investigation. The book does not say so, but I feel that if niether the money is recovered, nor the people caught, then the only conclusion is the grand failure of the entire regulatory mechanism as well as the investigative mechanism. 

This book provides the final proof of the need of an independent and decently functioning CBI, which no political party has as yet even spoken of doing, Aam Aadmi Party apart. The book will also provide hints - if you read between the lines - as to why no one wants to bell the cat. It points out how outdated our regulatory and investigative mechanisms are, and the dire need for upgradation. The apparent collusion between various players in the market - with not one single market player being untouched or spared - will make you wonder at the games that were, and for all we know {IMO} are being played. RBI, SEBI, JPC, Mutual Funds, Broking Houses - a dirty picture is painted of how these operated- leading to losses for the taxpayer, and the common man and investor; with the big guys getting clean away. Something we are pretty used to - but dont you think that enough is enough? Read the book the get a feel of how collusion at high levels leads to a national disaster - with irrefutable proof!

A special section is kept for Foreign Banks, who tom-tom their internal systems and superiority in operational systems and procedures. They,  alongwith SBI and other Indian Banks, to be fair, have ripped apart in no uncertain terms. Deals and trades were regularly done without the underlying securities being received, Instruments issued without cover of any underlying security, unsecured loans passed without due diligence, excessive exposure to select brokers, unreconciled books, investments in speculative stocks, all in all you are left wondering at the internal systems, which were supposed to be robust. An uncomfortable thought, or rather news, comes to mind, wherein even in the 2007 Subprime scam, most of the big guys got away, and oversight and falsehoods were exposed. There is even a question or hint or suggestion of the possibility of money being diverted for terrorist activities - a thought which cannot be dismissed so lightly. 

This is a book  that is a must read for all corporate professionals and Business Management/Law/CA/Commerce Students, from whichever stream; this is an education on how short-termism and the chase for profits has the possibility to subvert all checks and balances, pull wool over the eyes of stakeholders and regulators - causing immense damage to the nation and the society. This is a story of how  a few crooked people at the top can cause damage to the names of some of the most august organisations in the world, and is a clarion call for introspection, and internal changes in systems and procedures {if these have not been already undertaken - which does not seem evident to me}. This is a book of how the big guy destroys the lives of the middle and junior level executives {whose careers have been tragically destroyed and who are still fighting to clear their names}. This is a tragic story of the triumph of evil and greed over the forces of the market and the law - in some ways, a deeply moving motion picture of the successive failure of the legal process, checks and balances and of the ultimate victory of crime...

Does crime pay? it seems so, looking at the current reality in India. And if this is the reality, high time we made changes to ensure that in future, some reviewer or commentor can write... Crime does not pay. 

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