INDEX

SR. NO. 1. 2. 3. 4. TOPIC INTRODUCTION HISTORY OF STOCK MARKETS & SCAMS IN INDIA LIST OF SCAMSTERS & THEIR SCAMS CORE: IPO SCAM HARSHAD MEHTA SCAM KETAN PAREKH SCAM UTI (US-64) SCAM CRB SCAM PAGE NO. 2 3 7 9 13 18 24 28

5. 6..

CONCLUSION BIBLIOGRAPHY & WEBLIOGRAPHY

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INTRODUCTION
Greed, graft, politics, bribery, dirty money. Just another day in the life of a nation still rated among the most corrupt in the world. Scan the scams that have grabbed headlines, destroyed reputations and left many people poorer. Corruption in India is not a secret from anyone, as it is prevalent from private to the public sector and almost everyone in the system is part of the misdoings. The damage caused by corruption to the Indian state exchequer is immense, with Indians hoarding $1,456 billion in black money at Swiss banks. Apart from Indians being well informed about the so-called intricacies of the system, India has also earned a few special titles regarding corruption. The nation has been ranked 1st in a list of 30 countries related to the readiness of companies to pay bribes for business contracts, in both, the public and the private sector. Though India has been touted to be one of the fastest growing nations in the world, it is not surprising to see that the country at the same time is suffering from an epidemic known as corruption. The country could very well be defined as a failed administrative state, as the country has been ranked 97th out of 146 countries, in a Failed States Index by Foreign Policy in Washington. India also has the distinction of being ranked 70th in a list of 183 countries by Transparency International, who look into the cleanliness of businesses in the country. Though bribery has been part of the nation since its heydays, the only cause of concern is that Indias economy is suffering immensely because of these corrupt men, who never fail to make a buck for themselves by stealing the hard earned money of Indian people from the state exchequer.

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HISTORY OF STOCK MARKETS & SCAMS IN INDIA

A few men, started one association under a banyan tree for trading some commodity/security in 1875. Who knew at that time that it would grow and would become NSE/BSE? Interesting? Read some finest events and milestones of Indian Stock Exchange. To study the history of the capital market in India we have to look back in eighteenth century when East India Company started security trading in India. Security trading in India was unorganised during that time. Until the end of nineteenth century, scene was same. Two chief trading centres were Calcutta and Bombay now known as Mumbai and Kolkata. (It has to be mentioned, if you do not want apologize later). Out of them Bombay was main trading port. During American civil war (1860), Bombay was at important centre where essential commodities were traded. Because of heavy supply those days prices of stocks enjoyed boom period. Probably, the first Indian stock exchange boom period. It lasted for almost 5 years. After those booming period Indian stock exchange faced the first bubble burst on July 1st 1965. During that time trading in stock market was just a concept, a thought, an idea. It was limited to 12-15 brokers only. There market was situated under a banyan tree in front of the Town hall in Bombay. These brokers organised an association, of course informal in nature, in 1875. Name of the association was Native Shares and Stock Broker Association. Very few visionary could feel that it was starting of the great history of Indian stock exchange. After 5 decades of the incidence, the Bombay stock exchange was recognized in May 1927 under the Bombay Security contracts Control Act, 1925. But still the exchange was not well organised as British Government was not willing to see India as rising nation. After independence, 1st priority of Indian government was development of the agriculture sector and public sector undertakings. Public sector undertakings were healthier for sure but they were not listed in stock exchange. In first and second five year plan, capital market was not a goal for Indian government. Moreover, the controller of capital issues closely controlled many factors for new issues. It was one reason and big enough to de-motivate Indian corporate to stay away from the idea of going public.
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In 1950s, some good companies listed in the exchange were brokers favourite. Some of them were Century Textile, Tata steel, Bombay dyeing, Kohinoor mills. They were favourite not because of any technical or fundamental reason. The brokers enjoyed trading in these scripts as it was operated by operators. Slowly the stock exchange was given one new name Satta Bazaar! But surprisingly, despite of speculation, defaults cases were very few. In 1956, the government passed the Securities Contract Act. In 1960s, Indo China war happened. And it was starting of bearish phase in stock exchange. This bearish trend was aggravated by the ban in 1969 on forward trading and badla. Badla was technically contracts for clearing. Financial institutes helped to boost the sentiment by injecting liquidity in the market. In 1964, the first Indian mutual fund came in market, named the Unit Trust Of India. In 1970s , badla trading was resumed again under another form of hand delivery contracts. But in 1974, 6th of July was the day when capital market got one bad news. Government introduced the Dividend Restriction Ordinance; this rule was restricting the payment of dividend by companies to 12 per cent of the face value or one-third of the profits of the companies that can be distributed. (Whichever was lower.)!! Stock market crashed again. Stocks went down by 20% and the market was closed for nearly a fortnight. The sentiment of stock market was same until the optimism came in market with when the MNCs were forced to dilute majority stocks in their company in favour of Indian public. Many MNCs left India. But 123 MNCs offered shares were lower than its intrinsic value. It was the first time Indian public had opportunity to invest in some of the finest MNCs. In 1977, Mr Dhirubhai Ambani knocked the door of Indian stock exchange and it was probably the turning point not only for Indian stock exchange but for Indian economy. In 1980s, Indian stock exchange witnessed blasting growth period. Indian public discovered lucrative opportunities in stock exchange. It was the time when people who did not even now what is stock exchange, investing in the same. The growth doubled with the government liberalization process in mid 1980s. New stock market entries like Reliance and LNT re-defined Indian stock market scenario. Such factors enlarged volume in stock exchange. 1980s can be characterized by huge increase in the number of stock market, listed companies and market capitalisation.
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The 1990s can be described as the most important decade in the history of Indian stock market. Everyone was talking about liberalisation and globalisation. The Capital Issue Act of 1947 was replaced in 1992. SEBI was emerged as a new regulator of the market. FII is coming to India and re-rating India as one of the most attractive market in world. Number of new stock exchanges was rising in county. Private sector mutual funds were welcome in market. Some very big scams of Indian scam history took place in 1990s. The impact of such incidence was very deep. Indian investors drove their money out of market for some years. Positive side , these scams opened Indian government eyes. New technology new systems were introduced in Indian stock exchange. The Bombay stock exchange had two new competitors in market. OTC was established in 1992 and NSE was established in 1994. The national security clearing corporation (NSCC) and National securities depository Limited (NSDL) were established in 1995 and 1996 respectively. In 19951996 Option trading service was started. Rolling settlement was introduced in India in early 1998. Number of participation in stock exchange was rising with new segments for trading, new products and new technology. 1990s is known as era of Indian IT companies too. Wipro, Infosys, Satyam were some of the favourite stocks. Telecom and Media sector also rising during the same time. Indian market welcomed Y2K with scam of Ketan Parekh. After that scam Badla system was banned in Indian market and rolling settlement was introduced in all scripts. Future trading was started in June 2000. In February 2000, Internet trading was permitted, all these events changed picture of old stock market. In 2001, UTI suspension of sale and re-purchase of its famous scheme US-64. It created panic in market. One big incidence of VSNL disinvestment took place in February 2002. In 2003, the government took decision to privatize PSU banks and it was market buster again. In 2000s, FII money started coming in Indian market like never before. NSE volume crossed BSE volume during the same time. Global meltdown hit Indian market in late 2007 and throughout 2008. Big Satyam Scam was exposed in 2008 again and it hit investors spirit badly. Since 2nd quarter of 2009 we have been watching up move trend for market again, after positive election result in India. Investors are again coming in market.

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It has been a long volatile journey for the Indian capital market. Now the capital market is organized, matured, fairly valued, nicely regulated and more global. The Indian market is one of the most attractive markets today! It gives stable high rate of return compared to other countries. In terms of technology Indian equity market is one of the best in the world too. Computer and telecom sector advances and Internet is shattering geographic boundaries. Internet is giving wide range of investors and Internet is also used to provide better level of information.

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A CONCISE LIST OF SCAMSTERS & THEIR SCAMS

Markets are less volatile, so why not look back at those people who created huge volatility and mess in the Indian stock markets. Yes, we are talking about biggest scamsters in Indian stock markets. These are the biggest scams that hit the Indian stock markets which created havoc among investors and traders. Ramlinga Raju , Founder, Satyam Computers. Amount : Rs.8,000 crores. The fraud: Cooked up account books of his company. Method: Inflated revenues and hid liabilities. Harshad Mehta, Broker. Amount : Rs.4,000 crore. The fraud: Responsible for the securities scam of 1992. Method: Accused of diverting funds from banks to the tune of over rs.4,000 crores to stock brokers bewteen 1991-1992. Ketan Parkekh, Promoter, NH securities. Amount : Rs.1,500 crores. The fraud: Accused of price rigging. Method: Used to trade in shares under fictious names.

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CR Bhansali, Founder, CRB capital markets. Amount : Rs.1,200 crores. The fraud: Cheated public of over 1.000 croroes and the sbi of 57 crores. Method: Raised money from public and transferred it to non-existent companies. Dinesh Dalmia former MD, DSQ Software. Amount : Rs.595 crores. The fraud: Dalmia resorted to illegal ways of making money. Method: Dalmia resorted to illegal ways of making money through the shares of DSQ software. Other Scams: Mundhra Scandal IPO Scam Virendra Rastogi/ RBG Resources Scam UTI (US 64) Scam Uday Goyal/ Arrow Global Agrotech Ltd Scam

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:: CORE :: IPO SCAM

When the Securities Exchange Board of India (SEBI) started scanning an entire spectrum of IPOs launched over 2003, 2004 and 2005, it ended digging up more dirt and probably prevented a larger conspiracy to hijack the market. Here is a lowdown on the IPO scam: Introduction: An IPO is the first sale of an entity's common shares to public investors. When an entity wants to enter the market, it makes its share available to common investors in form of an auction sale. Each application for an IPO has to be within a cut-off figure, which is eligible for allotment in the retail investors category. But in this case, financiers and market players illegally cornered these retail investors' shares. The scam involved manipulation of the primary market by financiers and market players by using fictitious or benaami demat accounts. While investigating the Yes Bank scam, SEBI found that certain entities had illegally obtained IPO shares reserved for retail applicants through thousands of benaami demat accounts. They then transferred the shares to financiers, who sold on the first day of listing, making windfall gains from the price difference between the IPO price and the listing price. Detection of the scam: The IPO scam came to light in 2005 when the private 'Yes Bank' launched its initial public offering. Roopalben Panchal, a resident of Ahmedabad, had allegedly opened several fake demat accounts and subsequently raised finances on the shares allotted to her through Bharat Overseas Bank branches.

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The SEBI started a broad investigation into IPO allotments after it detected irregularities in the buying of shares of YES Banks IPO in 2005. What triggered the SEBI probe? On October 10 last year, an Income Tax raid on businessman Purushottam Budhwani accidentally found he was controlling over 5,000 demat accounts. SEBI finds this suspicious. On December 15, SEBI declared results of its probe, how a few people cornered a large chunk of YES Bank IPO shares. On January 11 this year, SEBI discovered huge rigging in the IDFC IPO. Roopalben Panchal was found to be controlling nearly 15,000 demat accounts. It was found that once they obtained these shares, the fictitious investors transferred them to financiers. The financiers then sold these shares on the first day of listing, reaping huge profits between the IPO price and the listing price. The SEBI report covered 105 IPOs from 2003-2005. The SEBI probe covered several IPOs dating back to 2005, 2004 and 2003 to detect misuse. These included the offerings of Jet Airways, Sasken Communications, Suzlon Energy, Punj Lloyds, JP Hydro Power, NTPC, PVR Cinema, Shringar Cinema and others. A lot more dubious accounts across several IPOs are expected to tumble out in the next few days. It also detected similar irregularities in the IDFC IPO, in which over 8 per cent of the allotment in the retail segment was cornered by fictitious applicants through multiple demat accounts. Who is Roopalben Panchal? Roopalben Panchal of IndiaBulls Securities is allegedly the mastermind of the scam. Roopalben Panchal and associates including a private company called Sugandh Estates cornered the shares of IDFC and Yes Bank by making thousands of applications under the retail category. They opened thousands of bank accounts and demat
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accounts using false identities with the connivance of bank employees and employees of a depository participant. It was disclosed earlier by the SEBI that the group cornered more than 10 lakh shares of Yes Bank and more than 1 crore shares of IDFC. These shares were sold off the in the secondary market for a handsome profit, immediately after listing. SEBI handed over the case to the CBI for further investigation. The agency conducted raids at 27 different locations in Ahmedabad, Mumbai and Delhi yesterday. Roopalben Panchal and her husband have been arrested and Rs1 crore in cash have been recovered. Volume of the scam Apart from the YES Bank fraud, SEBI reportedly has definite data about two IPOs where retail allotments were rigged, but market observers believe the scam is far bigger. The Yes Bank and IDFC cases are only a tip of an iceberg, say analysts. The SEBI probe has identified more operators and some market intermediaries involved in the misuse of the initial allotment process in public offerings dating back to 04-05. The Income-Tax Department in Ahmedabad has found that two major accused, Panchal and Sugandh Investments, have together made Rs 60.62 crore in 18 months. Role of Depository Participants Suzlon Energy Ltd's Rs 1,496.34 crore (Rs 14.963 billion) public issue (September 23-29, 2005). The retail portion was oversubscribed 6.04 times and the non-institutional portion was oversubscribed 40.27 times. Key operators used 21,692 fictitious accounts to corner 323,023 shares representing 3.74 per cent of the total number of shares allotted to retail individual investors. Jet Airways's Rs 1,899.3 crore (Rs 18.993 billion) public offer (Feb 18-24, 2005). The retail portion was subscribed 2.99 times and the non-institutional portion by 12.5 times. Key operators used 1186 fake accounts for cornering 20,901 shares
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repersenting 0.52 per cent of the total number of shares allotted to retail investors. National Thermal Power Corporation Ltd's Rs 5,368.14 crore (Rs 53.681 billion) IPO (Oct 7-14, 2004). The retail portion was oversubscribed 3.73 times and the non-institutional portion by 11.93 times. Key operators used a total of 12,853 afferent accounts for cornering 2,750,730 shares representing 1.3 per cent of the total number of shares allotted to retail investors. Tata Consultancy Services's Rs 4,713.47 crore (Rs 47.134 billion) public offer (Aug 19-23, 2004). The retail portion was oversubscribed 2.86 times and the non-institutional portion by 19.15 times. Key operators used 14,619 'benami' accounts to corner 261,294 shares representing 2.09 per cent of the total shares allotted to retail individual investors. Patni Computer System Ltd's Rs 430.65 crore (Rs 4.306 billion) public issue (Jan 27-Feb 5 2004). The retail portion was oversubscribed 9.36 times and the non-institutional portion by 39.22 times. A lone key operator used 2541 afferent account for cornering 127,050 shares representing 2.71 per cent of the total number of shares allotted to retail investors.

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HARSHAD MEHTA SCAM

Harshad Mehta was an Indian stockbroker and is alleged to have engineered the rise in the BSE stock exchange in the year 1992. Exploiting several loopholes in the banking system, Harshad and his associates siphoned 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. He was later charged with 72 criminal offenses and more than 600 civil action suits were filed against him. He died in 2002 with many litigations still pending against him. Early life Harshad Shantilal Mehta was born to Shantilal Mehta, a small businessman, and Rasilaben Mehta. He spent his early childhood in Mumbai the capital of Maharashtra and the family moved to Raipur in Madhya Pradesh sometime in mid-1960s. He studied at the Holy Cross High School, located at Byron Bazaar area of Raipur. After completing his secondary education Harshad left for Mumbai. Supporting himself with odd jobs he completed a Bachelors degree in Commerce in 1965 from Lala Lajpat Rai College and started his working life as an employee of the New India Assurance Company. During this period his family relocated to Bombay and his brother Ashwin Mehta started to pursue graduation course in law at Lala Lajpat Rai College. His youngest brother Hitesh is a practising surgeon at the B.Y.L.Nair Hospital in Mumbai. After his graduation Ashwin joined (ICICI) Industrial Credit and Investment Corporation of India. As a stock broker In the late seventies every evening Harshad and Ashwin started to analyze tips generated from respective offices and to clearly understand the stock market operation they extended their study to regular financial statement as well. In the early eighties he quit his job and sought a job with stock broker P. Ambalal (who is affiliated to Bombay Stock Exchange) (BSE) before becoming a jobber on BSE for stock broker P.D. Shukla.

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In 1981 he became a sub-broker for stock brokers J.L. Shah and Nandalal Sheth. After a while he was unable to sustain his overbought positions and decided to pay his dues by selling his house with consent of his mother Rasilaben and brother Ashwin. The next day Harshad went to his brokers and offered the papers of the house as guarantee. The brokers Shah and Sheth were moved by his gesture and gave him sufficient time to overcome his position. After he came out of this big struggle for survival he became stronger and his brother quit his job to team with Harshad to start their venture GrowMore Research and Asset Management Company Limited. While a brokers card at BSE was being auctioned, the company made a bid for the same with financial assistance from Shah and Sheth, who were Harshad's previous broker mentors. He rose and survived the bear runs, this earned him the nickname of theBig Bull of the trading floor, and his actions, actual or perceived, decided the course of the movement of the Sens*x as well as scripspecific activities. By the end of eighties the media started projecting him as "Stock Market Success", "Story of Rags to Riches" and he too started to fuel his own publicity. He felt proud of these accomplishments and showed off his success to journalists through his mansion "Madhuli", which included a billiards room, mini theater and nine-hole golf course, and a fleet of imported cars including a custom built Lexus luxury sedan, a rarity in India in those days. During his heyday, in the early 1990s, Harshad Mehta commanded a large resource of funds and finances as well as personal wealth. The fall In April 1992, the Indian stock market crashed, and Harshad Mehta, the person considered the architect of the bull run was blamed for the crash. He had manipulated the Indian banking systems to siphon off funds from the banking system and used the funds to build large positions in a select group of stocks. When the scam was exposed, he was called upon by the banks and financial institutions to return the funds. This necessitated the liquidation of the stock holdings and an exit from the positions which he had built in various stocks. The selling brought about a severe market downturn, creating a selling panic, and the stock market crashed within days. He was arrested on June 5, 1992 for his role in the scam.
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The Details Harshad Mehta had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Companies (ACC). The price of ACC shares was bid up to Rs. 10,000. Mehta justified by the Replacement cost theory which argues that Old companies should be valued on the basis of the amount of money which would be required to create another such company. Through the second half of 1991, Mehta was the darling of the business media and earned the sobriquet of the Big Bull, who was said to have started the Bull Run. But no body in the market could figure out the source of money for Mehtas investment. The crucial mechanism through which the scam was effected was the Ready Forward (RF) deal. The RF is in essence a secured short-term loan(typically 15-day) from one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery. The borrowing banfk 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. It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasnt the case in the lead-up to the scam. 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. In this settlement process, the buyer and the seller might not even know whom they had traded with, either being know only to the broker. This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank. Another instrument used in a big way was the Bank Receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower,
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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. It promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer. Having figured this out, Metha needed banks, which could 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 Cooperative Bank (MCB) - came in handy for this purpose. These banks were willing to issue BRs as and when required, for a fee, the authors point out. 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 Mehtas 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 (close to $ 1 billion) The extent The Harshad Mehta induced security scam, as the media sometimes termed it, adversely affected at least 10 major commercial banks of India, a number of foreign banks operating in India, and the National Housing Bank, a subsidiary of the Reserve Bank of India, which is the central bank of India. A number of people holding key positions in the India's financial sector were adversely affected, which included arrest and sacking of K. M. Margabandhu, then CMD of the UCO Bank; removal from office of V. Mahadevan, one of the Managing Directors of Indias largest bank, the State Bank of India.

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The end The Central Bureau of Investigation which is Indias premier investigative agency, was entrusted with the task of deciphering the modus operandi and the ramifications of the scam. Harshad Mehta was arrested and investigations continued for a decade. During his judicial custody, while he was in Thane Prison, Mumbai, he complained of chest pain, and was moved to a hospital, where he died on 31 December 2001. His death remains a mystery. Some believe that he was murdered ruthlessly by an underworld nexus (spanning several South Asian countries including Pakistan). Rumor has it that they suspected that part of the huge wealth that Harshad Mehta commanded at the height of the 1992 scam was still in safe hiding and thought that the only way to extract their share of the 'loot' was to pressurize Harshad's family by threatening his very existence.[citation needed] In this context, it might be noteworthy that a certain criminal allegedly connected with this nexus had inexplicably surrendered just days after Harshad was moved to Thane Jail and landed up in imprisonment in the same jail, in the cell next to Harshad Mehta's.

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KETAN PAREK SCAM

The Crash that Shook the Nation The 176-point Sensex crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alike. More so, as the Union budget tabled a day earlier had been acclaimed for its growth initiatives and had prompted a 177-point increase in the Sensex. This sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate investigations into the volatility of stock markets. SEBI also decided to inspect the books of several brokers who were suspected of triggering the crash. Meanwhile, the Reserve Bank of India (RBI) ordered some banks to furnish data related to their capital market exposure. This was after media reports appeared regarding a private sector bank having exceeded its prudential norms of capital exposure, thereby contributing to the stock market volatility. The panic run on the bourses continued and the Bombay Stock Exchange (BSE) President Anand Rathi's (Rathi) resignation added to the downfall. Rathi had to resign following allegations that he had used some privileged information, which contributed to the crash. The scam shook the investor's confidence in the overall functioning of the stock markets. By the end of March 2001, at least eight people were reported to have committed suicide and hundreds of investors were driven to the brink of bankruptcy. The scam opened up the debate over banks funding capital market operations and lending funds against collateral security. It also raised questions about the validity of dual control of co-operative banks. (Analysts pointed out that RBI was inspecting the accounts once in two years, which created ample scope for violation of rules.) The first arrest in the scam was of the noted bull, Ketan Parekh (KP), on March 30, 2001, by the Central Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single handedly caused one of the biggest scams in the history of Indian financial markets. He was charged with defrauding Bank of India (BoI) of about $30 million among other charges. KP's arrest was followed by yet another panic run on the bourses and the Sensex fell by 147 points. By this time, the scam had become the 'talk of the nation,' with intensive media coverage and unprecedented public outcry.
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THE MAN WHO TRIGGERED THE CRASH Ketan Parekh [KP] was a chartered accountant by profession and used to manage a family business, NH Securities started by his father. Known for maintaining a low profile, KP's only dubious claim to fame was in 1992, when he was accused in the stock exchange scam. He was known as the 'Bombay Bull' and had connections with movie stars, politicians and even leading international entrepreneurs like Australian media tycoon Kerry Packer, who partnered KP in KPV Ventures, a $250 million venture capital fund that invested mainly in new economy companies. Over the years, KP built a network of companies, mainly in Mumbai, involved in stock market operations. The rise of ICE (Information, Communications, and Entertainment) stocks all over the world in early 1999 led to a rise of the Indian stock markets as well. The dotcom boom contributed to the Bull Run led by an upward trend in the NASDAQ. The companies in which KP held stakes included Amitabh Bachchan Corporation Limited (ABCL), Mukta Arts, Tips and Pritish Nandy Communications. He also had stakes in HFCL, Global Telesystems (Global), Zee Telefilms, Crest Communications, and PentaMedia Graphics KP selected these companies for investment with help from his research team, which listed high growth companies with a small capital base. According to media reports, KP took advantage of low liquidity in these stocks, which eventually came to be known as the 'K-10' stocks. The shares were held through KP's company, Triumph International. In July 1999, he held around 1.2 million shares in Global. KP controlled around 16% of Global's floating stock, 25% of Aftek Infosys, and 15% each in Zee and HFCL. The buoyant stock markets from January to July 1999 helped the K-10 stocks increase in value substantially. HFCL soared by 57% while Global increased by 200%. As a result, brokers and fund managers started investing heavily in K10 stocks. Mutual funds like Alliance Capital, ICICI Prudential Fund and UTI also invested in K-10 stocks, and saw their net asset value soaring. By January 2000, K-10 stocks regularly featured in the top five traded stocks in the exchanges. HFCL's traded volumes shot up from 80,000 to 1,047,000 shares. Global's total traded value in the Sensex was Rs 51.8 billion. As such huge amounts of money were being pumped into the markets; it became tough for KP to control the movements of the scripts. Also, it was reported that the volumes got too big for him to
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handle. Analysts and regulators wondered how KP had managed to buy such large stakes. THE FACTORS THAT HELPED THE MAN According to market sources, though Ketan Parekh [KP] was a successful broker, he did not have the money to buy large stakes. According to a report 12 lakh shares of Global in July 1999 would have cost KP around Rs 200 million. The stake in Aftek Infosys would have cost him Rs 50 million, while the Zee and HFCL stakes would have cost Rs 250 million each. Analysts claimed that KP borrowed from various companies and banks for this purpose. His financing methods were fairly simple. He bought shares when they were trading at low prices and saw the prices go up in the bull market while continuously trading. When the price was high enough, he pledged the shares with banks as collateral for funds. He also borrowed from companies like HFCL. This could not have been possible out without the involvement of banks. A small Ahmedabad-based bank, Madhavapura Mercantile Cooperative Bank (MMCB) was KP's main ally in the scam. KP and his associates started tapping the MMCB for funds in early 2000. In December 2000, when KP faced liquidity problems in settlements he used MMCB in two different ways. First was the pay order route, wherein KP issued cheques drawn on BoI to MMCB, against which MMCB issued pay orders. The pay 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. As per a RBI inspection report, MMCB's loans to stock markets were around Rs 10 billion of which over Rs 8 billion were lent to KP and his firms. 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. Apart from direct borrowings by KP-owned finance companies, a few brokers were also believed to have taken loans on his behalf. It was alleged that Madhur Capital, a company run by Vinit Parikh, the son of MMCB Chairman Ramesh Parikh, had acted on behalf of KP to borrow funds. 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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The MMCB pay order issue hit several public sector banks very hard. These included big names such as the State Bank of India, Bank of India and the Punjab National Bank, all of whom lost huge amounts in the scam. It was also alleged that Global Trust Bank (GTB) issued loans to KP and its exposure to the capital markets was above the prescribed limits. According to media reports, KP and his associates held around 4-10% stake in the bank. There were also allegations that KP, with the support of GTB's former CMD Ramesh Gelli, rigged the prices of the GTB scrip for a favorable swap ratio before its proposed merger with UTI Bank. KP's modus operandi of raising funds by offering shares as collateral security to the banks worked well as long as the share prices were rising, but it reversed when the markets started crashing in March 2000. The crash, which was led by a fall in the NASDAQ, saw the K-10 stocks also declining. KP was asked to either pledge more shares as collateral or return some of the borrowed money. In either case, it put pressure on his financials. By April 2000, mutual funds substantially reduced their exposure in the K-10 stocks. In the next two months, while the Sensex declined by 23% and the NASDAQ by 35.9%, the K-10 stocks declined by an alarming 67%. However, with improvements in the global technology stock markets, the K-10 stocks began picking up again in May 2000. HFCL nearly doubled from Rs 790 to Rs 1,353 by July 2000, while Global shot up to Rs 1,153. Aftek Infosys was also trading at above Rs 1000. In December 2000, the NASDAQ crashed again and technology stocks took the hardest beating ever in the US. Led by doubts regarding the future of technology stocks, prices started falling across the globe and mutual funds and brokers began selling them. KP began to have liquidity problems and lost a lot of money during that period It was alleged that 'bear hammering' of KP's stocks eventually led to payment problems in the markets. The Calcutta Stock Exchange's (CSE) payment crisis was one of the biggest setbacks for KP. The CSE was critical for KP's operation due to three reasons. One, the lack of regulations and surveillance on the bourse allowed a highly illegal and volatile badla business. Two, the exchange had the third-highest volumes in the country after NSE and BSE. Three, CSE helped KP to cover his operations from his rivals in Mumbai. Brokers at CSE used to buy shares at KP's behest. Though officially the scrips were in the
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brokers' names, unofficially KP held them. KP used to cover any losses that occurred due to price shortfall of the scrips and paid a 2.5% weekly interest to the brokers. By February 2001, the scrips held by KP's brokers at CSE were reduced to an estimated RS 6-7 billion from their initial worth of Rs 12 billion. The situation worsened as KP's badla payments of Rs 5-6 billion were not honored on time for the settlement and about 70 CSE brokers, including the top three brokers of the CSE (Dinesh Singhania, Sanjay Khemani and Ashok Podar) defaulted on their payments. By mid-March, the value of stocks held by CSE brokers went down further to around Rs 2.5-3 billion. The CSE brokers started pressurizing KP for payments. KP again turned to MMCB to get loans. The outflow of funds from MMCB had increased considerably from January 2001. Also, while the earlier loans to KP were against proper collateral and with adequate documentation, it was alleged that this time KP was allowed to borrow without any security. By now, SEBI was implementing several measures to control the damage. An additional 10% deposit margin was imposed on outstanding net sales in the stock markets. Also, the limit for application of the additional volatility margins was lowered from 80% to 60%. To revive the markets, SEBI imposed restriction on short sales and ordered that the sale of shares had to be followed by deliveries. It suspended all the broker member directors of BSE's governing board. SEBI also banned trading by all stock exchange presidents, vice-presidents and treasurers. A historical decision to ban the badla system in the country was taken, effective from July 2001, and a rolling settlement system for 200 Group A shares was introduced on the BSE. THE SYETEM THAT BRED THESE FACTORS The small investors who lost their life's savings felt that all parties in the functioning of the market were responsible for the scams. They opined that the broker-banker-promoter nexus, which was deemed to have the acceptance of the SEBI itself, was the main reason for the scams in the Indian stock markets. SEBI's measures were widely criticized as being reactive rather than proactive. The market regulator was blamed for being lax in handling
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the issue of unusual price movement and tremendous volatility in certain shares over an 18-month period prior to February 2001. Analysts also opined that SEBI's market intelligence was very poor. Media reports commented that KP's arrest was also not due to the SEBI's timely action but the result of complaints by BoI. A market watcher said,"When prices moved up, SEBI watched these as 'normal' market movements. It ignored the large positions built up by some operators. Worse, it asked no questions at all. It had to investigate these things, not as a regulatory body, but as deep-probing agency that could coordinate with other agencies. Who will bear the loss its inefficiency has caused?"An equally crucial question was raised by media regarding SEBI's ignorance of the existence of an unofficial market at the CSE. Interestingly enough, there were reports that the arrest was motivated by the government's efforts to diffuse the Tehelka controversy. Many exchanges were not happy with the decision of banning the badla system as they felt it would rig the liquidity in the market. Analysts who opposed the ban argued that the ban on badla without a suitable alternative for all the scrips, which were being moved to rolling settlement, would rig the volatility in the markets. They argued that the lack of finances for all players in the market would enable the few persons who were able to get funds from the banking system - including co-operative banks or promoters - to have an undue influence on the markets. THE PEOPLE THAT THE SYSTEM DUPED KP was released on bail in May 2001. The duped investors could do nothing knowing that the legal proceedings would drag on, perhaps for years. Observers opined that in spite of the corrective measures that were implemented, the KP scam had set back the Indian economy by at least a year. Reacting to the scam, all KP had to say was, "I made mistakes." It was widely believed that more than a fraud, KP was an example of the rot that was within the Indian financial and regulatory systems. After all, Rs 2000 billion is definitely not a small amount - even for a whole nation.
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UTI (UNIT SCHEME 64) SCAM

The line between legitimate business and the mafia is getting increasingly diffused. The greater the liberalization/globalization of the economy, the more rampant is the loot. The amount robbed through the UTI scam entails thousands of crores the bulk of which belongs to small investors who have put their life-savings into this scheme. Unhappy investors Quote in 1998 "They were invested blindly in stocks, they have cheated us. I am telling everyone to sell. If they are stupid and offering Rs 14.25 for paper worth Rs 9, why should I let go of the opportunity? A Business Today survey cited US-64s NAV at Rs 9.68. The US-64 units, which were sold at Rs 14.55 and repurchased at Rs 14.25 in October 1998, thus were around 50% and 47%, above their estimated NAV. Here is the story that lies behind this tragedy: Introduction The Unit Trust of India is the largest mutual fund in the country created in 1964 through an act of parliament. Mutual Funds are financial institutions that invest peoples money in various schemes, giving a guaranteed return to the investor. 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 US-64 scheme has 2 crore investors, the bulk of whom are small savers, retired people, widows and pensioners. Besides the US-64 the UTI runs 87other schemes giving investors various options. But the US-64 has been most popular, giving returns as high as 18% in 1993 and 94. Genesis of the Scam Liberalization of the economy immediately led to the liberalization of the UTI, throwing it to the mercy of the stock market. In 1992, itself the US-64 scheme was changed from a debt-based fund to one linked to equity. In 1992 only 28% of its funds was in equity; today it is over
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70%. Further liberalization was pushed by Chidambram, as the finance minister, who, in 1997, removed all government nominees from the board of the UTI. Besides, the US-64 does not come under SEBI regulations, its investment details are kept secret (even depositors cannot know where their funds are being parked) and the chairman has arbitrary powers to personally decide an investment upto a huge amount of Rs 40 crores. Such liberalization is tailormade for frauds. Not surprisingly, within one year of Chidambrams liberalization, in 1998, the UTI crashed, and the new BJP-led government organized a large Rs. 3,500 crore bail-out to prevent default. It was during this crisis that the new chairman, P.S. Subramanyam, was appointed. Subramanyam was a direct appointee of thug Jayalalitha, who had made his selection a condition for her continuing the support of the then NDA government. Later, though Jayalalitha withdrew from the government, Subramanyam developed close links with the Prime Ministers Office, and corporative big-wigs. Small investors funds were used to promote big business houses, shower favours to politicians, and invest huge amounts in junk bonds....all for a fat commission. Subramanyam functioned like a fascist, arbitrarily transferring hundreds of senior staff, in order to cover his tracks. He was a key player in the Ketan Parekh scam. Huge amount of UTI funds were channeled 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. The Trust saw its Rs. 30,000 portfolio (value of stocks) lose half its value within a year since Feb. 2000. To take just one example on how the UTI operated: In August 2000, much after the software stocks had begun to crash, the UTI bought Rs. 34 crores worth of shares in Cyberspace Infosys Ltd at the huge price of Rs 930 per share. Today the shares have no value and its Lucknow based promoters, the Johari Group, are in jail. But, what is astounding is that it was none other than Indias Prime Minister, Vajpayee, who laid the foundation stone for the Software Technology Park (STP) in Luknow, promoted by this group. (Incidentally the UP government had a 26% share in this STP). It does not take much imagination to link UTI purchases in Cyberspace with Vajpayee.
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Similar were the investments in DSQ Software, HFCL, Sriram Multitec. and others. Besides, the UTI also invested in junk bonds like Pritish Nandy communications (Rs. 1.5 crores), Jain Studios (Rs.5 crores), Sanjay Khans Numero Uno International (Rs. 7.5 crores), Malavika Spindles (Rs. 188 crores) etc. This amounted to nothing but handing over peoples money (investments) to the rich and powerful. Thereby thousands of crores were siphoned off to big business and prominent individuals, with the UTI chairman, bureaucrats and politicians taking their cuts. But this was not all. The fraud continues even further. With knowledge that the UTI was in a state of collapse, the Chairman organized a high profile propaganda campaign promoting UTI (spending crores of rupees on the top advertising company, Rediffusion), while at the same time leaking information to the big corporates to withdraw their funds. The Chairman thereby duped the lakhs of small investors through false propaganda, while allowing windfall profits to the handfull of big corporates who had invested in UTI. So, in the two month prior to the freezing of dealings in UTI shares, a gigantic sum of Rs. 4,141 crores was redeemed. Of this Rs.4,000 crores (97%) were corporate investments. What is more, they were re-purched at the price of Rs. 14.20 per share (face value Rs.10) when in fact its actual value (NAV net asset value) was not more than Rs. 8. As a result UTIs small investors lost a further Rs. 1,300 crores to the big corporates. In fact these huge withdrawals further precipitated the crisis. On July 4, 2001 the board of UTI took the unprecedented step of freezing the purchase and sale of all US-64 UTI shares for six months. Simultaneously it declared a pathetic dividend of 7% (10% on facevalue), which is even lower than the interests of the banks and post office saving schemes. Such freezing of legally held shares is unheard of and is like overnight declaring Rs. 100 notes as invalid for some time. In other words the 2 crore shareholders could not re-invest their money elsewhere and would have to passively see their share price erode from Rs. 14 (at which they would have purchased it) to Rs 8 and get interest at a mere 7% on their initial investments. Fearing a back-lash, the government/UTI later
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announced the ability to repurchase UTI shares at Rs. 10 i.e. at 30 % below the purchase price. Imagine the plight of a retired person who would have put a large part of his/her PF, gratuity etc. in the US-64 scheme, considering it the safest possible investment. Not only has the persons income (interest/dividend) halved overnight, he/she also stands to lose a large part of the investment. So, a person who invested Rs. 1 lakh would now only get back Rs 70,000. Today, the entire middle class is being robbed of their savings first it was by the private mutual funds (NBFCs), now by the govt. sponsored mutual fund. Those who gain are the robber barons who run the countrys economics, finance, politics. The middle-classes, affected by these scam, will soon realize the facts and come out of the euphoria of consumerism that has numbed their senses. They will see through the hoax of globalization/liberalization, and will turn their wrath on these so-called pillars of society. It is important that this impending explosion be channeled in a revolutionary direction, or else it will be diverted by the ruling elite into fratricidal clashes. The middle-classes are most prone to fall prey to ruling-class propaganda. But life itself is the best educator. Faced with unemployment, loot of their savings, price rise of all essentials, etc. they will no doubt, join the working class and their peasant brethrens in revolt.

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THE CRB SCAM

The case 'The CRB Scam' is intended to give a detailed insight into the frauds committed by the CRB group of companies. The case examines how the CRB group was able to defraud the investors and the regulatory authorities with ease. The role of RBI and SBI is also explored. The case is designed to expose the nature and extent of scams in the financial sector and the modus operandi to study the role and responsibilities of the regulatory authorities in the Indian financial sector and a critical evaluation of their performance to study the consequences of the scam. The Doomed Depositors May 18, 1997 - hundreds of angry, frustrated and scared people stood outside the Reserve Bank of India's (RBI) Mumbai headquarters under the scorching sun. They were waiting for Chain Roop Bhansali (Bhansali), the head of the CRB Group of companies to arrive. Three days earlier the RBI had given Bhansali 72 hours to come up with a plan to repay his liabilities following over 400 complaints from depositors in his company's financial schemes. Most top officials of CRB were untraceable from the second week of May itself. The Central Bureau of Investigation (CBI) locked and sealed the offices of the CRB Group and arrested six persons, including four directors (two from Bikaner and two from Mumbai) of the satellite companies of the group, a financial controller in Mumbai and a relative and close associate of Bhansali in Delhi. The CBI also conducted simultaneous searches at 16 places in Mumbai, three in New Delhi, one each in Chennai and Ahmedabad and two places each in Calcutta, Jhunjunu, Sujangarh and Bikaner. The CBI froze the bank accounts of the group companies and seized incriminating files and other documents from the residence of the vice-president of the CRB group in Mumbai. Following rumors that Bhansali had fled India and was hiding in Hong Kong or Canada, the CBI sought Interpol's assistance to trace his whereabouts. RBI filed a winding-up petition claiming that the continuance of the CRB Group was not in the interest of the public and depositors. The order prohibited CRB from selling, transferring, mortgaging or dealing in any manner with its assets and from accepting public deposits. In
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response, Bhansali sent a letter to the RBI. Though it was not signed by him, the letter said that the RBI order had led to the deterioration of the company's financial position. It added that the company was facing tremendous problems with payments to fixed depositors. The letter further said that 'we have, also expressed that in view of the precarious situation which is fast going out of our control, before it becomes unmanageable, our case should be considered sympathetically.' This letter led the investors to believe that Bhansali would come out of hiding and work out a way to get out of the mess. However, Bhansali did not show up. With the expiry of the RBI deadline, the CRB Group collapsed, shattering the dreams of thousands of investors across the country. The Man and The Mess Born in a jute trader's house in Calcutta, Bhansali was a studious person. After obtaining a degree in commerce, Bhansali completed Chartered Accountancy in 1980. In the same year, he started a financial consultancy firm, CRB Consultancy. Through Bhansali's personal contacts, CRB Consultancy soon managed to secure the business of providing issue management services to a few well-known companies in Calcutta. Over the years, Bhansali acquired other degrees as well including ACS, Ph.D., MIIA (US) and a diploma in Journalism. Though he made a lot of money, Bhansali found it difficult to find recognition in Calcutta. He then moved to New Delhi to join one of the country's leading registrars of companies. However when Bhansali was caught shortcharging the registrar's clients, he had to leave. Bhansali then established 'CRB Consultants,' a private limited company in New Delhi in 1985. In 1992, the name of the company was changed to CRB Capital Markets (CRB Caps) and it was converted into a public limited company. The company offered various services including merchant banking, leasing and hire purchase, bill discounting and corporate funds management, fixed deposit and resources mobilization, mutual funds and asset management, international finance and forex operations. CRB Caps was also very active in stock-broking having a card both on the BSE and the NSE. The company raised over Rs 176 crore from the public by January 1995. The A+ rating given by CARE and upfront cash
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incentives of 7-10% attracted investors in hordes to Bhansali's schemes. The Modus Operandi Bhansali was reported to have specialized in setting up dummy investment companies. He used to sell these dummy companies to buyers. He capitalized on the 1985 boom in leasing companies to become cash rich. He had established good contacts in the Registrar of Companies and the Controller of Capital Issues offices. He registered companies with practically no equity and then stage-managed the dummy company's maiden public issue with a few hundred investors, largely from Calcutta's close knit Marwari Jain community. Having had a company listed on the stock exchange, Bhansali then sold it for a profit to businessmen who needed dummy public limited companies in a hurry. Bhansali used his own money to rig share prices in order to raise more money from the markets in two ways. Firstly, he bought his own stock through private finance companies owned by him. Secondly, he used his other public companies to buy into each other as cross-holdings... Defrauding the SBI In May 1996, CRB Caps opened a current account in SBI's main Mumbai branch, for payment of interest, dividend and redemption cheques. The payment warrants could be presented at any of the 4,000 SBI branches for payment. However, Bhansali was granted only a current account facility and did not enjoy any overdraft facility. He was expected to deposit cash upfront into the current account, along with a list of payments that had to be honored. Claiming that the logistics of payment were very complex and that it was not possible for every branch to check with the head office before honoring a dividend warrant, the branches gradually began treating these instruments just like a demand draft. For about nine months, the setup worked very well. However, in March 1997, SBI realized that the account had been overdrawn to the extent of a few crores. Bhansali was called to the
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SBI office and asked to remit the difference immediately, which he promptly did. The Systemic Rot The collapse of the CRB group seemed to be a fraud allowed by supervisors despite the regulations in place. The lack of clear communication channels between the banks, RBI and the government seemed to have worked to Bhansali's advantage to a great extent. Frequent clashes occurred between RBI and SEBI in the media, with both of them trying to prove how the other was responsible for not acting early enough. The RBI claimed that it had no powers to examine the asset quality of the CRB group and thereby was not in a position to pass any judgment on the character of asset generation or deployment of the funds raised by the group. The bank further claimed that the powers were granted only in March 1997, when the RBI Act of 1934 was amended to include specific provisions for the purpose. The bank also stated that it had begun to examine the liabilities and not the assets. However, media reports were quick to refute RBI's claims... The Aftermath The CRB scam took the whole nation by storm. At one point, the Union finance ministry held a meeting everyday to get to the brasstacks of the CRB fiasco. In a meeting with SEBI, the finance minister criticized the regulator severely. The government asked the RBI to prepare a panel of auditors asking to explore the possibility of making auditing of NBFCs a prerequisite to registration. In October 1998, the SEBI appointed an administrator for CRB's Arihant scheme finalized a scheme for payment to the unit holders. Under the scheme, the investors were prematurely paid Rs 4.95 per unit, which was its NAV as of 31 March 1998. When the administrator had taken over, the assets of the scheme comprised the fund's frozen bank accounts worth Rs 81 lakh, plus some dividends from investments. Besides, there were a large number of listed (but thinly traded) and unlisted shares amounting to Rs 17.5 crore.
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CONCLUSION
Scams in the stock market are common today. Wondering how you can avoid being affected by them? You must understand the phenomenon and learn to recognize the telltale signs. Read on to know how! With activity in the stock market ever on the rise, scamsters are aware that every investor wants to subscribe to stocks from particular industries, such as software as part of their portfolio because these stocks yield higher returns. Heres the architecture of a typical scam: Currently, more than 4500 companies are listed in the B2 category on the BSE. The B2 category is a subset of listed shares that have higher market capitalization and liquidity than the rest. Stocks of these companies are hardly traded as these companies are no longer in operation. Scamsters take over and change the entity of such a company to that of a software company. They hire people, install required equipment and claim to process software export orders. In reality, they do not have the requisite infrastructure or personnel to process export orders. Next, they set up a subsidiary abroad by hiring a representative to run operations or by renting a small place. They conduct export transactions using free ports, such as Hong Kong, Singapore, and Dubai. They pay cash in India and obtain dollars from the subsidiary. In the company books, these dollars are reflected as income from exports. The promoters then hire market operators to publish stories indicating huge orders or collaborations and predict excellent profits for the company. This is substantiated by the net profit figure boosted by the forged export income in the companys books. The Earnings Per Share (EPS) for the company appears healthy and is priced low when compared to other companies, and the stock is deemed to be an excellent buy. A few market operators then start transactions on the stock and increase liquidity for the counter. Consequently, the trade volumes for the share rise. The share price increases 3 to 5 times in a short
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period of time. The promoters then start taking advantage of this buoyant situation and sell their stocks to investors. The price of the share goes down suddenly and the investors end up with dead stock. The promoters are able to obtain a good price for stocks of their company. Further, they get a tax rebate by converting hoarded cash into export income! So before investing in any stock, do check the companys background carefully and performance of the stock at least for the past two quarters. Its best to avoid investing in stocks that show too much fluctuation in prices.

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BIBLIOGRPAHY/WEBLIOGRAPHY
http://indianblogger.com/top-10-financial-scams-in-india/ http://www.caclubindia.com/ http://www.sharetermpapers.com/ http://www.scribd.com/ http://www.slideshare.net/ http://ismb-india.blogspot.com/ http://ibnlive.in.com/ http://unit64controversy.blogspot.com/ http://www.indiabuzzing.com/ http://smallbusiness.yahoo.com/ http://www.wikipedia.org/

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