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Scams That Shook the Indian Stock Market

The Public’s preferred investing option has been in the stock market for a very long time. This has made several wealthy investors who receive high returns on their investments. Nevertheless, there have been stock market scams in which scammers have deceived investors and the market, resulting in irrevocable and irreplaceable harm. These tales will be remembered for years to come.

This article will provide you with an overview of several fraudulent actions that had a significant impact on the Indian stock market. When these instances were uncovered, it shook the stock market to a great extent. This reduced the system’s overall worth by having a negative impact on both its regular operation and the investors’ financial situation.

Here are the top five Indian stock market scams that left a lasting impression on the minds of many.

Harshad Mehta Scam

The Harshad Mehta scam is perhaps one of the biggest stock market frauds in India. Renowned trader Harshad Mehta conspired with bank workers to influence the Bombay Stock Exchange (BSE).

According to allegations, Harshad Mehta and a few bank staff members obtained phoney bank receipts (BRs), which they then used to persuade other banks to give him money on the pretence of lending against securities (g-secs). Official government securities are regarded as debt instruments with no credit risk, whereas counterfeit bank receipts are essentially worthless.

Harshad Mehta defrauded the banks of ₹4,000 cr in total, which he then used to influence stock prices.

The UTI Scam

The 2001 UTI stock market scams were a financial catastrophe that shook the Indian stock market. Unit Trust Of India (UTI), one of the biggest mutual fund providers in India, was implicated in the scandal. Disparities were discovered in the share distribution during the initial public offerings (IPOs) of several corporations.

A number of well-known people, including stockbrokers and UTI executives, are accused of carrying out the stock market scams in India by working together to influence the share allotment. To obtain a higher share allocation, they tricked the system by using fake identities.

After an investigation conducted by SEBI, the Indian stock market’s regulating authority, the fraud was ultimately discovered. According to the study, during the IPOs, UTI executives preferred some brokers and investors over others. Investors lost more than Rs. 5,000 crores as a result of the fraud.

The government created UTI’s Asset Management Company (AMC) in 2003 to supervise the company’s asset management in reaction to the scandal. This action contributed to a resurgence of trust in the mutual fund sector and the UTI.

Ketan Parekh Scam

Following the Harshad Mehta fraud, “Ketan Parekh,” a chartered accountant, planned to set up a similar securities scam. Ketan is regarded as the inheritor of Harshad Mehta’s con game since, coincidentally, he was once a student under the master scammer. It is one of the biggest stock market frauds in India.

However, Ketan Parekh also used to obtain money from other financial organisations in addition to banks. He used to boost the stock values, same like Harshad Mehta artificially. Ketan Parekh was an active participant in the Calcutta Stock Exchange and the Allahabad Stock Exchange, in addition to the Bombay Stock Exchange.

However, Parekh used to deal mainly in the K-10 equities, which are ten particular stocks. He used the idea of circular trading to drive up the value of their shares. It may surprise you to learn that the promoters of some firms paid him to increase the value of their stocks on the market. In any case, the Sensex fell by 176 points on the announcement of the 2001 Union budget. The Indian government conducted a thorough inquiry into this issue.

Ketan Parekh was eventually found to be the mastermind of these stock market scams by the Central Bank, and he was prohibited from trading on Indian stock markets until 2017.

The Stamp Paper Scam

This is among the most surprising types of frauds in stock market. At the Khanapur station in Karnataka, Abdul Karim Telgi sold fruit before rising to prominence as one of India’s most notorious con artists. In 1991, he had orchestrated a major stamp paper hoax. This man had the brilliant idea to counterfeit stamp papers, but you must have heard of counterfeiting money notes and establishing a printing facility for fake notes. He was aware that there was a constant demand for stamp sheets and a limited supply.

Telgi has his dummy stamp paper printing apparatus set up. He used to provide steep discounts to organisations like banks on these stamp papers as well as other court documents.

Telgi’s deception was gradually exposed following an inquiry, and in 2001, he was ultimately taken into custody. His fraud had a value of ₹20000 crore. Strangely enough, Nashik Sessions Court cleared him and his gang mates after his murder since there wasn’t “Solid evidence” against them.

The Satyam Scam

Mr. Ramalinga Raju created Satyam Computers, an IT business situated in Hyderabad, in 1987. It was the IT business with the highest growth rate in India, listed on the BSE in 1992 and the NYSE in 2001.

For Satyam Computers, everything was going well, but Mr Raju found the real estate boom to be a curse. He created Maytas infrastructure and Maytas properties and began purchasing land surrounding the anticipated metro line since he had inside knowledge of the Hyderabad metro route. But to purchase additional acreage, he required more cash. 

His next move was to raise fictitious sale invoices and modify bank records to reflect more significant cash reserves to enhance the value of the shares artificially. Satyam’s share price increased because of all of this. At the inflated stock prices, he and the promoters decided to sell their interest and utilise the proceeds to purchase real estate. The promoters of Satyam lowered their ownership from 24% in 1999 to 2% in 2008. But he was severely impacted by the 2008 recession with such stock market scams in India

He was unable to turn a profit on the land sale due to the decline in real estate values. Additionally, the discrepancy between the false and actual earnings grew to the point that he was forced to admit to the fraud. Mr Raju admitted to manipulating prices, currency, and fake invoices and receipts to SEBI. The stock market dropped as predicted, and Mr. Raju received a jail sentence. After being purchased by the Mahindra Group, Satyam was rebranded as Mahindra Satyam and eventually combined with Tech Mahindra in 2013. 

Closing thoughts

The stock markets were repeatedly conned out of hundreds of crores! Greed has always resulted in catastrophe. The aforementioned types of frauds in stock market in India unsettled investors and cast doubt on the reliability of the country’s stock exchanges.

In order to oversee and control the operation of the Indian securities markets, the Securities and Exchange Board of India (SEBI) was founded in the country’s early 1990s. The supreme body that oversees the activities of investors in the Indian securities market is this one. If you keep up with the financial markets, you are aware of the annual changes made to the SEBI Act and Regulations.

To protect the interests of Indian investors in the common stock market, SEBI has taken a number of essential actions. Even yet, a lot of con artists are able to deceive the Indian banking system. Even though fewer stock market frauds and business scandals have occurred since SEBI was established, they haven’t entirely ceased.


What steps can investors take against stock market scams in India? 

To ensure protection, investors should diligently research companies and investment prospects prior to making any financial commitments. Additionally, being cautious against false promises of substantial returns is crucial. Seeking guidance from a certified financial advisor is advisable.

How do regulatory bodies contribute against scams and fraudulent activities? 

Entities like the Securities and Exchange Board of India (SEBI) play a pivotal role by overseeing and regulating the market. They establish rules and guidelines for companies and traders. The authority also conducts investigations into reported irregularities or stock market scams in India.

What changes have emerged in the Indian stock market to enhance transparency and fairness?

The market has evolved through heightened regulations and oversight, particularly by the Securities and Exchange Board of India (SEBI). Stricter reporting and auditing standards for companies have been implemented, and penalties for breaching market rules and guidelines have been escalated. Collectively, these measures aim to foster transparency and fairness against the various types of frauds in stock market.

Is it possible for investors to retrieve their losses arising from these scams? 

Potential avenues include settlements and legal proceedings; however, the extent of recovery hinges on the particulars of the scam and the eventual outcomes of any legal actions.

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