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GLOBAL RESEARCH LIMITED

INDIAN MARKET

SCAMS

SCAMS
A
1992
HARSHAD MEHTA SECURITIES SCAM

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

common 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.

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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.

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SCAMS
2001
KETAN PAREKH SCAM

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.

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Rs. 1250 crs

2001
UTI SCAM

Rs. 4800 crs

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 Subramanyam the chairman to involve himself in the fraud. Small investor's funds were .S. 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.

2008
SATYAM SCAM

Rs. 10,000 crs

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.

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SCAMS
2008
THE 2-G SPECTRUM SWINDLE

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.

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Rs. 60,000 crs

2009
MADHU KODA SCAM

Rs. 4000 crs

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.

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 1992 1994 1995

Scam Name Harshad Mehta Securities Scam Sugar Import Scam Preferential Allotment Scam Meghalaya Forest scam Yugoslav Dinar Scam

Approx. Amt. Involved ( Rs. Crs) 4,000 650

5,000 300 400

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SCAMS
OTHER SCAMS DIRECTORY
Year 1996 Scam Name Fertiliser Import Scam Urea Scam Bihar Fodder Scam 1996 Sukh Ram Telecom Scam SNC Lavalin Power Project Scam Bihar Land Scandal C.R. Bhansali Stock Scam 1998 2001 Teak Plantation Swindle UTI Scam Dinesh Dalmia Stock Scam Ketan Parekh Securities Scam 2002 2003 2005 Sanjay Agarwal Home Trade Scam Telgi Stamp Paper Scam IPO-Demat Scam Bihar Flood Relief Scam Scorpene Submarine Scam 2006 Punjab's City Centre Project Scam Taj Corridor Scam 2008 Pune Billionaire Hassan Ali Khan Tax Default The Satyam Scam Army Ration Pilferage Scam 2G Spectrum Swindle State Bank of Saurashtra Scam Illegal Monies In Swiss Banks 2009 The Jharkhand Medical Equipment Scam Rice Export Scam Orissa Mine Scam Madhu Koda Mining Scam

Approx. Amt. Involved ( Rs. Crs) 1,300

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133

950

1,500 374

400

1,200 8,000 4,800

595

1,250 600

172

146

17

18,978 1,500

175

50,000 10,000 5,000

60,000

95

71,00,000 130

2,500 7,000 4,000

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SCAMS
CONCLUSION
Disclaimer
The information and views in this report, our website & all the service we provide are believed to be reliable, but we do not accept any responsibility (or liability) for errors of fact or opinion. Users have the right to choose the product/s that suits them the most.

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.

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