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  2. 2. SCAMS SCAMS GLOBAL RESEARCH LIMITED THE MEMOIR OF THE INDIAN MARKETS SCAMS A 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. 1992 HARSHAD MEHTA SECURITIES SCAM Rs. 5000 crs 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. Its 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 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. www.capitalvia.com | 2
  3. 3. SCAMS SCAMS GLOBAL RESEARCH LIMITED 2001 KETAN PAREKH SCAM Rs. 1250 crs 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 Parekhs party by hammering prices of the K-10 stocks, it was this that led to the collapse of the market and the scam discovered. 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 investors 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 Satyams 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 companys poor performance during the quarters he indulged in falsifying accounts. Also, he had also used dummy accounts to trade in Satyams shares, violating the insider trading norm. The amount of the scandal than grew bigger than the Rs. 7000 crore highlighted earlier. www.capitalvia.com | 3
  4. 4. SCAMS SCAMS GLOBAL RESEARCH LIMITED 2008 THE 2-G SPECTRUM SWINDLE Rs. 60,000 crs 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. 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 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 www.capitalvia.com | 4
  5. 5. SCAMS SCAMS GLOBAL RESEARCH LIMITED OTHER SCAMS DIRECTORY Year Scam Name Approx. Amt. Involved ( Rs. Crs) 1996 Fertiliser Import Scam 1,300 Urea Scam 133 Bihar Fodder Scam 950 1996 Sukh Ram Telecom Scam 1,500 SNC Lavalin Power Project Scam 374 Bihar Land Scandal 400 C.R. Bhansali Stock Scam 1,200 1998 Teak Plantation Swindle 8,000 2001 UTI Scam 4,800 Dinesh Dalmia Stock Scam 595 Ketan Parekh Securities Scam 1,250 2002 Sanjay Agarwal Home Trade Scam 600 2003 Telgi Stamp Paper Scam 172 2005 IPO-Demat Scam 146 Bihar Flood Relief Scam 17 Scorpene Submarine Scam 18,978 2006 Punjabs City Centre Project Scam 1,500 Taj Corridor Scam 175 2008 Pune Billionaire Hassan Ali Khan Tax Default 50,000 The Satyam Scam 10,000 Army Ration Pilferage Scam 5,000 2G Spectrum Swindle 60,000 State Bank of Saurashtra Scam 95 Illegal Monies In Swiss Banks 71,00,000 2009 The Jharkhand Medical Equipment Scam 130 Rice Export Scam 2,500 Orissa Mine Scam 7,000 Madhu Koda Mining Scam 4,000 www.capitalvia.com | 5
  6. 6. SCAMS SCAMS GLOBAL RESEARCH LIMITED CONCLUSION The frauds in the financial markets have been known since years. The greed of the scamsters leads to involvement in unhealthy practices and corruption. Its the common man who has always been at stake. The poorer become poorer and the richer the richest. Its not that these scams are coming to the highlight these days its 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 its too late and the Common Man already suffers. So, always be careful with your investments everywhere. 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. Investment in Stocks has its own risks. Sincere efforts have been made to present the right investment perspective. The information contained herein is based on analysis and up on sources that we consider reliable. We, however, do not vouch for the accuracy or the completeness thereof. This material is for personal information and we are not responsible for any loss incurred based upon it & take no responsibility whatsoever for any financial profits or loss which may arise from the recommendations above. The stock price projections shown are not necessarily indicative of future price performance. The information herein, together with all estimates and forecasts, can change without notice. CapitalVia does not purport to be an invitation or an offer to buy or sell any financial instrument. Analyst or any person related to CapitalVia might be holding positions in the stocks recommended. It is understood that anyone who is browsing through the site has done so at his free will and does not read any views expressed as a recommendation for which either the site or its owners or anyone can be held responsible for. Our Clients (Paid Or Unpaid), Any third party or anyone else have no rights to forward or share our calls or SMS or Report or Any Information Provided by us to/with anyone which is received directly or indirectly by them. If found so then Serious Legal Actions can be taken. Any surfing and reading of the information is the acceptance of this disclaimer. All Rights Reserved. www.capitalvia.com | 6