Indian Scams

8/3/2019 Indian Scams

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INDIAN MARKET

GLOBAL RESEARCH LIMITED

C A MSS



THE MEMOIR OF THE INDIAN MARKETS SCAMS

lot is heard in the past and till today we hear a lot about the financial markets scams. Financial Market Scams

are the attempts by scamsters who indulge in crooked activities to fulfil the bellies of their own at the stake of

Acommon man. These scamsters through various fraudulent activities gather big chunks of money. Our report is

one such initiative to highlight a few scams in India, how it was done and the money that was involved in these scams.

Harshad Mehta known to be “Big Bull of the trading floor” was an Indian stockbroker and is alleged to

have engineered the rise in the BSE stock exchange in the year 1992.He and his associates draw off

funds from inter-bank transactions and bought shares heavily at a premium across many segments,

triggering a rise in the Sensex. When the scheme was exposed, the banks started demanding the

money back, causing the collapse. The broker was dipping illegally into the banking system to finance

his buying. The amount that was involved in this scam was approx. to Rs. 5000 crs.

How Harshad Mehta financed his deals?

Harshad Mehta worked on the mechanism of READY FORWARD (RF) DEALS. It's a secured short-term (typically 15-day) loan

from one bank to another. The bank lends against government securities. The borrowing bank actually sells the securities to the

lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price. The deal was done

between the banks through brokers for commissions. In this settlement process, deliveries of securities and payments were

made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the

buyer gave the cheque to the broker, who then made the payment to the seller. Thus , both the parties may not know each

other. It was this idea that made the mind of Harshad to involve into the modus operandi. Harshad in his scam took the help of

Bank Receipts. In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e. the

seller of securities, gave the buyer of the securities a BR. A BR “confirms the sale of securities. It acts as a receipt for the money

received by the selling bank. Hence the name - bank receipt promises to deliver the securities to the buyer and the seller holds

the securities in trust of the buyer.

Having figured this out, Mehta needed banks, which issue fake BRs, or BRs not backed by any government securities. “Two

small and little known banks - the Bank of Karad (BOK) and the Metropolitan Co-operative Bank (MCB) - came in handy for this

purpose. These banks were willing to issue BRs as and when required, for a fee”. Once these fake BRs were issued, they were

passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against

government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock

market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the

bank was returned. The game went on as long as the stock prices kept going up, and no one had a clue about Mehta's modus

operandi. Once the scam was exposed though, a lot of banks were left holding BRs which did not have any value - the banking

system had been swindled of a whopping Rs 4,000 crore.

HARSHAD MEHTA SECURITIES SCAM R s. 5000 cr s 1992


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Ketan Parekh is a former stock broker from Mumbai, India, who was convicted in 2008, for involvement

in the Indian stock market manipulation scam in late 1999-2001. He was involved in rigging up the stock

prices. A chartered accountant by training, Parekh came from a family of brokers, which helped him

create a trading ring of his own. Between 1999 and 2000, when technology bubble was seen in the

world, the Indian Markets at that time were also flourishing, he started rigging up stock prices. He rigged

up the prices by borrowing from big banks and Investment firms. By the time he became famous to rig

the prices everyone be it investment firms, promoters of listed companies, overseas corporate bodies

etc , all were ready to hand the money to him. Scrips like Visualsoft rose from Rs 625 to Rs 8,448 per

share and Sonata Software from Rs 90 to Rs 2,150. The inflated stocks had to be dumped to someone in the end, and Parekh

used the financial institutions like the UTI to control the situations. A bear cartel started disrupting Parekh's party by hammering

prices of the K-10 stocks, it was this that led to the collapse of the market and the scam discovered.

The Unit Trust of India is the largest mutual fund in the country created in 1964. The UTI (of which the

US-64 scheme is the largest) was set-up specifically to channel small savings of citizens into

investments giving relatively large returns/interest. The investments of the individuals were basically

done in debt, but after the liberalization of the economy more allocation was made to equity investments. The US-64 did not

came under SEBI regulations, its investment details were kept secret and the chairman has arbitrary powers to personally

decide its investment. This led Mr. P.S. Subramanyam the chairman to involve himself in the fraud. Small investor's funds were

used to promote big business houses, shower favours to politicians, and invest huge amounts in junk bonds all for a fat

commission. He was a key player in the Ketan Parekh scam. Huge amount of UTI funds were channelled into the infamous K-10

list of Keten Parekh stock, such as Himachal Futuristic, Zee Telefilims, Global Tele, DSQ, etc. The UTI continued to buy these

shares even when their market value began to crash in mid-2000, in order to prop up the share values of these stocks. This

whole story led to the ultimate decline of the fund.

Ramalinga Raju founded Satyam Computers in 1987 and was its Chairman until January 7, 2009 when he

resigned from the Satyam. In January 2009, the founder indicated that Satyam's accounts had been

falsified over a number of years. He admitted to an “accounting fraud” to the tune of 7000 crore. In order

to hide the company's poor performance during the quarters he indulged in falsifying accounts. Also, he

had also used dummy accounts to trade in Satyam's shares, violating the insider trading norm. The

amount of the scandal than grew bigger than the Rs. 7000 crore highlighted earlier.

KETAN PAREKH SCAM R s. 1 250 cr s

UTI SCAM R s. 4800 cr s

SATYAM SCAM R s. 10,000 cr s

2001

2001

2008





The 2G spectrum scam involved officials in the government of India illegally undercharging mobile

telephony companies for frequency allocation licenses, which they would use to create for 2G

subscriptions for cell phones. It is alleged that A. Raja arranged the sale of the 2G spectrum licenses

below their market value. Swan Telecom, a new company with few assets, bought a license for Rs. 1537

crore. Shortly thereafter, the board sold 45% of the company to Etisalat for Rs. 4200 crore. Similarly, a

company formerly invested in real estate and not telecom, the Unitech Group, purchased a license for

Rs. 1661 crore and the company board soon after sold a 60% stake in their wireless division for Rs.

6200 crore to Telenor. The nature of the selling of the licenses was that licenses were to be sold at market value, and the fact

that the licenses were quickly resold at a huge profit indicates that the selling agents issued the licenses below market value.

The 2-G Spectrum case is still on and the approximate figures that this scam involves is Rs. 60000 crs which the street knows.

THE 2-G SPECTRUM SWINDLE

2008

Madhu Koda (born January 6, 1971) is an Indian politician who was Chief Minister of Jharkhand from

2006 to 2008. He was sworn in as the fifth Chief Minister of Jharkhand on September 18, 2006 and

remained in office until he resigned on 23 August 2008. He is alleged to have involved in Money-

laundering and mining scam. He was charged with laundering money worth over Rs. 4000 crores.

In nationwide raids by the Enforcement Directorate, assets allegedly worth Rs. 4000 crore — almost a

fifth of the annual budget of the state he once ruled — were unearthed. Among others, these assets

were reported to include hotels and three companies in Mumbai, property in Kolkata, a hotel in

Thailand, and a coal mine in Liberia.

MADHU KODA SCAM

2009R s. 4000 cr s



OTHER SCAMS DIRECTORY

These are some of the big scams that we have highlighted above. The practice of fraud, money laundering, politics, bribery,

dirty money is seen in abundance in other cases too. We are highlighting the scams and the money involved in the same.

Year Scam Name Approx. Amt. Involved ( Rs. Crs)

1992 Harshad Mehta Securities Scam 4,000

1994 Sugar Import Scam 650

1995 Preferential Allotment Scam 5,000

Meghalaya Forest scam 300

Yugoslav Dinar Scam 400

R s. 60,000 cr s





OTHER SCAMS DIRECTORY

Year Scam Name Approx. Amt. Involved ( Rs. Crs)

1996

1998

2001

2002

2003

2005

2006

Sukh Ram Telecom Scam

Teak Plantation Swindle

UTI Scam

Sanjay Agarwal Home Trade Scam

Telgi Stamp Paper Scam

IPO-Demat Scam

Punjab's City Centre Project Scam

The Satyam Scam

Army Ration Pilferage Scam

2G Spectrum Swindle

Taj Corridor Scam

Bihar Flood Relief Scam

Scorpene Submarine Scam

Dinesh Dalmia Stock Scam

Ketan Parekh Securities Scam

SNC Lavalin Power Project Scam

Bihar Land Scandal

C.R. Bhansali Stock Scam

Bihar Fodder Scam

1996 Fertiliser Import Scam 1,300

1,500

8,000

4,800

600

172

146

1,500

2008 Pune Billionaire Hassan Ali Khan Tax Default 50,000

10,000

5,000

60,000

175

17

18,978

595

1,250

374

400

1,200

Urea Scam 133

950

State Bank of Saurashtra Scam

Illegal Monies In Swiss Banks

95

71,00,000

2009 The Jharkhand Medical Equipment Scam

Rice Export Scam

Orissa Mine Scam

Madhu Koda Mining Scam

130

2,500

7,000

4,000




l |

The frauds in the financial markets have been known since years. The greed of the scamsters leads

to involvement in unhealthy practices and corruption. It's the common man who has always been at

stake. The poorer become poorer and the richer the richest. It's not that these scams are coming to

the highlight these days it's a sin that is present since years. Bribery, dirty money, greed, politics

have all helped the scamsters to survive. And when they are actually caught in the trap it's too late

and the Common Man already suffers. So, always be careful with your investments everywhere.

CONCLUSION

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Documents

Indian Scams