Financial Scams in India

Recently India has become the land of multiple scams and in world media because of its bureaucratic approaches. But I downloadwill focus on few famous financial scams that where directly linked to financial markets featuring :

  • Manipulation in share prices.
  • Monopoly in dealing with a huge number of shares of a company.
  • Money laundering-borrowing money to trade in securities but using the funds for unconnected purposes.

Harshad Mehta Scam Year 1992

The scam was in essence a diversion of funds from the banking system (in particular the inter-bank market in government securities) to brokers for financing their operations in the stock market. It was uncovered in April 1992, when press reports indicated that there was a shortfall in the Government Securities held by the SBI. It has involved misappropriation of funds to the tune of 3500 crores.

The Mechanics of Scam

  • It transpired that he had manipulated the Indian banking systems to siphon off the funds from the banking system, and used the liquidity to build large positions in a selected group of stocks ( ACC, Apollo Tyres, Reliance, TISCO, BPL, Sterlite, Videocon).
  • Borrowed money from banks on a ready forward(RF) basis and dealt in security transactions with banks where issue of bank receipts (BR’s) were not supported by genuine holding of securities.
  • The fake BR’s were issued by Bank of Karad and the Metropolitan Cooperative Bank.
  • The cheques issued by banks were credited to his accounts.

Ketan Parekh (KP) Scam famously known as K10 Year 2000

Ketan Parekh invested in 10 companies.
Major stakes in

  • Global Telesystem : 16% (for Rs.200 million).
  • Aftek Infosys: 25% (for Rs.50 million).
  • Zee Telefilms: 15% (for Rs.250 million).
  • HFCL: 15% ( for Rs. 250 million).

The above was funded by :
Madhavapura Mercantile Cooperative Bank(MMCB) : Funding of nearly Rs.1000cr and Global Trust Bank: Funding of nearly Rs. 250cr.

The platform chosen was Calcutta Stock Exchange(CSE) because:

  • Illegal and Volatile “BADLA SYSTEM”.
  • Largest volume after NSE and BSE.
  • CSE’s brokers helped KP.

The scandal was discovered when :
Sensex dip 23% and K-10 dip 67% in April 2000
Responsible for Down trend : “BEAR CARTEL” (Shankar Sharma, Anand Rathi, Nirmal Bang).

The above resulted in

  • Loss of nearly Rs.2000 billion.
  • Loss of Reputation of SEBI.
  • Loss of Investor’s Trust.

The above scams may not be relevant in today’s scenario as the Regulators have moved forward with strict laws and regulations but you will always find there is no system which is full proof. There were several IPO scams that also took place will write on them next time.


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