Stock Market Scam

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Stock Market Scam

  1. 1. STOCK MARKET SCAM
  2. 2. Scam ? The scam is in essence a diversion of funds to the tune of over Rs. 3500 crores from the banking system to brokers for financing their operations in the stock market S CHEMING C RAFTY A GGRESSIVE M ALICIOUS
  3. 3. Scams In The Past <ul><li>In 2007, SEBI accuses 16 entities along with promoters of Atlanta of price manipulation </li></ul><ul><li>A group of operators, in 2007, rigs shares of Nissan Copper, which got listed in December 2006 </li></ul><ul><li>In 2006, Roopalben Panchal and her associate Deepak Panchal created forged identities and opened D-Mat accounts </li></ul><ul><li>The 176-point Sensex crash on March 1, 2001 by ketan parekh </li></ul><ul><li>Harshad Mehta scam in 1997 wiped off Rs 4,200 crore from the market </li></ul>
  4. 4. Ketan Parekh Scam <ul><li>The 176-point Sensex crash on March 1, 2001 </li></ul><ul><li>Known as 'Bombay Bull' </li></ul><ul><li>Rs 120-crore scam at the Calcutta Stock Exchange. </li></ul><ul><li>Accused of making brisk share purchases prior to March, 2001, through his associates </li></ul><ul><li>Arrested on December-2,2002 in kolkata </li></ul>
  5. 5. Factors that helped KP <ul><li>FUND RAISING </li></ul><ul><ul><li>Formed a network of brokers from exchanges like the ASE and the CSE </li></ul></ul><ul><ul><li>Purchase share in the name of poor people living in the shanty towns of Mumbai </li></ul></ul><ul><ul><li>Rs 250 crore loan from Global Trust Bank, though Global Trust’s Chairman Ramesh Gelli </li></ul></ul><ul><ul><li>Rs 1,000 crore from the Madhavpura Mercantile Co-operative Bank </li></ul></ul><ul><ul><li>IDBI Bank and IFCI had extended loans of Rs 1,400-odd crore to companies known to be close to Ketan Parekh </li></ul></ul><ul><ul><li>KP borrowed money from various companies like HFCL and banks </li></ul></ul>
  6. 6. Modus Operandi <ul><li>His financing method </li></ul>Bought shares when they were trading at low prices Saw the prices go up in the bull market while continuously trading Price was high enough, he pledged the shares with banks as collateral for funds
  7. 7. Aftermath of the Scam <ul><li>Immediate action by SEBI </li></ul><ul><li>BSE President Anand Rathi's (Rathi) resignation added to the downfall </li></ul><ul><li>The scam shook the investor's confidence </li></ul><ul><li>By the end of March 2001 </li></ul><ul><ul><li>At least eight people committed suicide </li></ul></ul><ul><ul><li>Hundreds of investors were driven to the brink of bankruptcy </li></ul></ul><ul><li>It also raised questions about the validity of dual control of co-operative banks </li></ul><ul><li>The Global Trust Bank and the Madhavpura Cooperative went bust because the money they had lent to Ketan had sunk </li></ul>
  8. 8. Harshad Mehta Scam <ul><li>Big Bull of the trading floor </li></ul><ul><li>His favorite stocks included • ACC • Apollo Tyres • Reliance • Tata Iron and Steel Co. (TISCO) • BPL • Sterlite • Videocon. </li></ul><ul><li>Rs 4,000 crore Scam </li></ul><ul><li>Rigged up the prices of three stocks - BPL, Videocon international and sterlite industries </li></ul><ul><li>Arrested on June 5, 1992 </li></ul>
  9. 9. Factors that helped Harshad <ul><li>Fund raising </li></ul><ul><ul><li>Channeled money from the banking system. </li></ul></ul><ul><ul><li>The Bank of Karad (BOK) and the Metorpolitan Co-operative Bank (MCB) issued fake BRs, or BRs not backed by any government securities </li></ul></ul><ul><ul><li>Using the ready forward (RF) deal which is a secured short-term (typically 15-day) loan from one bank to another </li></ul></ul><ul><li>Modus operandi was similar to that of ketan’s </li></ul>
  10. 10. Aftermath of the scam <ul><li>Rs 600 crore were swiped from the State Bank of India </li></ul><ul><li>A lot of banks were left holding BRs which did not have any value </li></ul><ul><li>Due to panic selling and close to Rs 5,000 crore worth of market capitalization was eroded </li></ul><ul><li>The index fell from 4500 to 2500 representing a loss of Rs. 100,000 crores in market capitalization. </li></ul><ul><li>withdrawal of about Rs. 3,500 crores from the market </li></ul>
  11. 11. One 2 million Simplifying Equity Investments

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