Scams that shook the Indian Stock Market

4 mins read
by Angel One

Stock market has remained one of the favorite investment choices for the public for a long time. It has created wealth for many investors, returning good yields from their investment. However, there were times when fraudsters conned the investors and fooled the market causing irreversible and irreplaceable damage and those stories are told for years to come.

In this article, we will give you a bird’s-eye view of some fraudulent activities that were so impactful that when discovered, they shook the stock market. This caused adverse effects on its normal functioning and on the finances of the investors, diminishing the value of the system on the whole.

Scam Nature of Industry Fraud Perpetrators Year Modus Operandi
Harshad Mehta scam Capital market Harshad Mehta 1992
    • Harshad Mehta used bank receipts extensively to raise funds from the banks.
    • Subsequently invested the same in the stocks listed in the BSE to inflate the stock prices artificially
CRB scam Capital Market C R Bhansali 1996
    • Raised public money through various instruments like Fixed Deposits, Mutual Funds via non-existent firms
    • Used the same to rig share prices in the stock market
Ketan Parekh scam Capital Market Ketan Parekh 2001
    • Procured funds from banks and other financial institutions.
    • Used those funds to inflate the stock prices artificially through circular trading
UTI scam Mutual Fund Chairman, Executive Director, Stock Broker 2001
    • The mismanagement of continuously investing in high-risk stocks and shares
    • Heavy investments in Ketan Parekh’s K-10 shares
Satyam Scam IT Company Auditor,

Director,

Managers

 2009
    • The top management of the software company manipulated the accounts to show inflated sales, profits and margins from 2003 to 2008
    • Overstated the assets
    • False disclosures
Sahara scam NBFC Subrata Roy 2009
    • Sahara Housing Investment Corp. Ltd. (SHICL), issued Optional Fully Convertible Debentures (OFCD) and illegally collected investor money circumventing the provisions of SEBI
Saradha Chit Fund scam Ponzi scheme Sudipta Sen 2013
    • The Ponzi scheme run by Saradha Group collected money from low-income investors by issuing redeemable bonds and secured debentures, promising incredibly high profits from reasonable investments.
    • Embezzled the money of the investors and defaulted on repayments
NSEL* scam

*NSEL, a company that provided an electronic platform to farmers and traders for spot trading in farm products and bullion among others

 Commodity

Market

 CEO, Promoters 2013
    • The commodities that were traded were not found in the warehouses
    • Excessive short selling and false reporting to exchanges
    • Default on payment to investors
PACL scam Ponzi scheme MD, Promoters, Directors 2014
    • The Ponzi land scheme run by PACL Ltd. duped investors in the name of assured returns from selling non-existent lands
    • Siphoned the collected money and defaulted on re-payment
Co-location scam Capital Market Officials of NSE, Brokers 2015
    • Selected players allegedly obtained market price information ahead of the rest of the market through co-location facility

source: UGC research paper on Fraudulent Financial Practices and Investor Protection

Other notable frauds in the stock market that made headlines are:

    • Mishka Finance and Trading Limited – IPO Fraud: 2013-14
    • Rakhi Trading Case & Ors-Reversal Trades in F&O: 2007/2014-15.
    • Eco-Friendly Food and Esteem Bio Organic – LTCG/Penny Stock Fraud
    • WhatsApp Leak Case – Mass Insider Trading Case of 2017

With the advent of technology, new age scams like social media scams are surfacing. When fraud surfaces, its impact goes a long way affecting the retail investors’ confidence in the stock market, preventing the stock market to reach its full potential, sometimes bankrupting the investors leading them to take extreme steps among others.

Although SEBI, along with other intermediaries, is striving to safeguard the integrity of the stock market and protect the investors, fraudsters still find a way to fool the system. As an investor, you must be cautious and take necessary measures to not fall prey into the hands of scamsters.