This document discusses internet fraud in the capital market and the role of regulatory bodies. It outlines several capital market scams in India and steps that investors and market regulators can take to prevent such frauds. As an investment manager, one must be aware of various scam types and conduct thorough background checks. Stock exchanges can undertake due diligence, auditing of brokers, set guidelines for information dissemination, and enforce codes of conduct to reduce fraud. Derivatives can also help hedge risks by allowing risk transfer through futures and options contracts.

1. Internet Fraud, the Capital
Market and SEC
Presented By-
Ketty Ghujan Krishnaja
Manpreet Singh Grewal
Prashant Ranjan
Yasha Singh
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2. 1.What is the common amongst the internet based
capital market Frauds?
• Investment in Cheap Stocks or Unregistered Securities.
• Data manipulation.
• Fraudulent information is given to investors through the same
methods(email, spam, websites).
• Creating artificial demand and thus selling after considerable
gain.
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3. 2. What is the role of a regulatory body in such a
scenario? Is SEC response appropriate. Outline the
steps already taken and those which may be taken in
addition to those mentioned above.
• Role
• Penalizing the guilty, if found.
• Upgrading existing system.
• Improving consumer awareness
• Amendment of monetary & statutory regulations
• SEC response was not appropriate because the feedback
system was not well integrated.
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4. Answer to question 2 continued
• Measures taken
• Implementation of Cyber Force( a s/w to track particular
type of spam)
• Finding the guilty through backtracking and penalizing
them monetarily.
• Enhancing safeguards for investors' assets
• Improving risk assessment capabilities
• Conducting risk-based examinations of financial firms
• Improving fraud detection procedures for examiners
• Measure to be taken
• Implementing a well integrated information system
• Improving the monetary and financial norms
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5. 3. Is there any similarity between the Harsad Mehta
Scam, Ketan Parik Scam, Mundra’s Scam, LTCM Fiasco
and the internet based CM Scam outlined in the case?
• Yes there are similarities between these cases:
• Triggered security firm by diverting funds from banks to
stock brokers.
• Took advantage of loopholes in banking systems and capital
market.
• Bought shares in fictitious name.
• Generated fictitious companies and sold the fictitious shares.
• They all are known as the big bull.
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6. 4. How can investor become intelligent investor and
safeguard their investment against such
scams/Frauds?
• Investors must check seller is licensed.
• Investment must be registered.
• Investors must check background of company.
• Understand investment and compare the risk with potential
rewards.
• Only through the steady flow of timely, comprehensive, and
accurate information can people make sound investment
decisions.
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7. 5. Why is a Fraud a Fraud?
• In criminal law, a fraud is an intentional deception made for
personal gain or to damage another individual; the related
adjective is fraudulent.
• Fraud is a crime, and also a civil law violation and unethical.
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8. 6. As an investment manager/CIO/CFO what do you
take from the case ?
• A lot of people are getting enticed to join the capital market
frauds simply because their offer seems so hard to resist.
• As an investment manager/CIO/CFO one must be vigilant of
the various developments in the capital market.
• One must also be aware about the different forms of scams
that can possibly occur, like “the pump and dump stock
market scams’ , “pyramid scams” etc.
• Before keeping employee for investment, I would check the
background of the person.
• How to safe guard the company and investors.
• Not to indulge in unethical activity.
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9. 7. Outline two internet based CM Frauds in India?
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10. 8. One of the frauds mention above is strategy
adopted by all corporate to function, however in the
case mentioned above it has turned out to be a
fraud? Which is this strategy and why is not a fraud
and corporate use it for the normal functioning of
business?
• Issue of Certificate of Deposits and Promissory notes by offering
high interest rates.
• Investment of raised fund into speculative stocks and companies
not registered in the Cambridge.
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11. 9. What steps must the stock exchange take to ensure
extensive reduction of such Frauds?
• Undertake due diligence and internal monitoring of the
various market participants
• Should undertake auditing and monitoring of the different
brokers, brokerage firms, and other market participants on an
ongoing basis.
• Should set out strict guidelines with regards to the
information that is disseminated to the investors. There
should be transparency and accuracy in the investment
information ventilated to the investors.
• There should be a strict code of conduct and ethical measures
that are to be adopted by the brokers. Anyone found guilty of
indulging in malpractices should be penalized or strict action
should be taken against them.
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12. 10. Can derivatives be used to hedge such risk? If yes
how?
• Yes derivatives can be used by:
• Allowing a person to reduce his exposure to certain kinds of
risk.
• Transferring those risks to another person that is more willing
and able to bear such risks.
• Using derivative instruments such as futures and options.
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