Scams Capital 1000 New

8/14/2019 Scams Capital 1000 New

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CAPITAL MARKET

SCAMS


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CAPITAL MARKET ?

The capital market is the market for

securities, where companies and govt.

can raise long term funds. It is a marketin which money is lent for periods

longer than a year. The capital market

includes the stock market and the bondmarket


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It is basically fraud done in the

Capital market with the investorsby manipulating the facts in order

to attain enormous profits.


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The Great Indian Scam-1992


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Who is this man?

HARSHAD MEHTA- story

Started his career with New India Assurance Co.

Quit his job in 1981 to become a sub-broker.

Went bankrupt in 1982 & recovered soon to

become more stronger.

Went on to become one the most successful broker

The Rags to Riches Story, thereby earning the

nick name of THE BIG BULL


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What was the SCAM allabout?

Diversion of funds

Use of Ready Forward (RF) to maintainSLR (Statutory Liquidity Ratio)

Creative Accounting

Intra-day Trading


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He triggered a rise in the Bombay StockExchange in the year 1992 by trading in sharesat a premium across many segments.

Taking advantages of the loopholes in thebanking system, Harshad and his associatestriggered a securities scam diverting funds tothe tune of Rs 4000 crore (Rs 40 billion) fromthe banks to stockbrokers between April 1991to May 1992.

Exploiting the loophole inthe banking system


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Mehta soon mastered the tricks of the tradeby managing several brokers and set out on

dangerous game plan. Mehta has siphoned offhuge sums of money from several banks andmillions of investors were conned in the

process. His scam was exposed, the markets

crashed and he was arrested and banned forlife from trading in the stock markets.

How it was done & role ofthe broker ?


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He was later charged with 72 criminal offences. ASpecial Court also sentenced Sudhir Mehta,Harshad Mehta's brother, and six others, including

four bank officials, to rigorous imprisonment (RI)ranging from 1 year to 10 years on the charge ofduping State Bank of India to the tune of Rs 600crore (Rs 6 billion) in connection with the

securities scam that rocked the financial marketsin 1992. He died in 2002 with many litigationsstill pending against him.

Major culprits Brokers, Bankers,Financial institutions, Bureaucrats,

etc.


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His favorite stocksincluded

ACC

Apollo Tyres

Reliance

Tata Iron and Steel Co. (TISCO)

BPL

Sterlite

Videocon.


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Market at Harshad Mehtascam


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The End of the BULL Story

Lifestyle (flashy cars & life like a celebrity)

Role of the CBI 31st December 2001 The Death Of The

Bull

Forever remembered as the Architect of theRs.50 billion Scam


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Introduction

C.A by profession-comes from broking

family background.

Popularly known as the Pentafour Bull

Known for his K10 series of stocks.


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THE K-10 STOCKS

Amitabh Bachchan Corporation Limited (ABCL)

Mukta Arts

Tips

Pritish Nandy Communications. HFCL

Global Telesystems (Global)

Zee Telefilms

Crest Communications

PentaMedia Graphics


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The Scam 2001

Banker Broker partnership

Manipulation of the fund

Erosion of public wealth


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Ketan Parekh The OneMan Army


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Ketan Parekh followed Harshad Mehta's

footsteps to swindle crores of rupees frombanks. A chartered accountant he used to runa family business, NH Securities.

Ketan however had bigger plans in mind. Hetargetted smaller exchanges like theAllahabad Stock Exchange and the CalcuttaStock Exchange, and bought shares infictitious names.


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WAYS HE FUNDED HIS SCAM

THE PAY ORDER ROUTE

KP issued cheques drawn on BoI (Bank of India) toMMCB (Madhavapura Mercantile Cooperative

Bank), against which MMCB issued pay orders. Thepay orders were discounted at BoI. It was alleged that

MMCB issued funds to KP without proper collateral

security and even crossed its capital market exposure

limits.


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THE PAY ORDER ROUTE

KP reportedly used his BoI accounts to

discount 248 pay orders worth about Rs 24

billion between January and March 2001.

BoI's losses eventually amounted to well

above Rs 1.2 billion.


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WAYS HE FUNDED HIS SCAM

BORROWING FROM MMCB

The second route was borrowing from a

MMCB branch at Mandvi (Mumbai), where

different companies owned by KP and his

associates had accounts.KP used around 16

such accounts, either directly or through

other broker firms, to obtain funds.


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Ketan borrowed Rs 250 crore from Global Trust Bank

to fuel his ambitions. Ketan alongwith his associatesalso managed to get Rs 1,000 crore from the

Madhavpura Mercantile Co-operative Bank.

According to RBI regulations, a broker is allowed aloan of only Rs 15 crore (Rs 150 million). There was

evidence of price rigging in the scrips of Global Trust

Bank, Zee Telefilms, HFCL, Lupin Laboratories,

Aftek Infosys and Padmini Polymer.


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HOW THE SCAM BROKE OUT?

His mode of raising funds by offerings

shares as collateral securities worked well

but..


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Only till the prices of shares went up

but it reversed when shares started falling

from mar 2000.

The crash was a result of fall at NASDAQ

that saw a fall in K-10 stock as well

In next 2 months, sensex declined by 23%and K-10 stock declined by 67%


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WHAT NEXT?

In May 2000, the market picked up back and

the prices of K-10 rise again

The prices of stock doubled like

HFCL doubled from Rs 790 to Rs 1353 by

July


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THE FINAL TURN AROUND

BY Dec.2000

the NASDAQ fell back again and the KP

stocks went down as the prices of stock

falling globally


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Cont..

KP faced liquidity problems

The CSE has payment crises and was a setback for KP because of three reasons which

are-


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THE 3 REASONS

I. The lack of regulations and surveillance

on the bourse allowed a highly illegal and

volatile badla business

II. The exchange had the third-highest

volumes in the country after NSE and

BSE.

III. CSE helped KP to cover his operations

from his rivals in Mumbai.


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THE DOWN FALL

Stocks held by KP and his broker were

reduced to 6-7 bn from 12bn

Situation worsened when KPs badla

payment was not honored and 70 CSE

brokers along with top 3 brokers made

default

By mid March the value of shares went to

2.5-3 bn.


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THE END

KPs brokers started pressuring him for

payment.

SEBI tricked the regulatory norms and

several other rules were framed

Finally KP was arrested.


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Market at Ketan Parekhscam


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references

Ethical Management -- Satish Modh

Cimrindia.org

Wikipedia.comwww.business-standard.com


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Documents

Scams Capital 1000 New