6 Biggest Stock Market Scams in India

The Indian Stock market is one of the essential parts of the Indian economy. It significantly contributes to the country’s GDP. However, sometimes it gets caused by scams and affects the entire marketplace. Whenever the stock market scams in India are discussed, most people suddenly remember the Harshad Mehta scam of 1992. However, there are some other biggest stock market scams that we will discuss in this blog.

So, if you are a new trader, investor, or person willing to know the most significant share market scams, then stay tuned with this post. Here you will explore how some traders brainstormed some techniques to manipulate the prices of shares. 

6 Biggest Stock Market Scams in India

Biggest Stock Market Scams In India

However, many scams happen every year in the share market, but here are some biggest and popular scams you need to know about. 

1. Harshad Mehta Scam

It is one of the famous stock market scandals on which the filmmakers have already produced films. In the early 1990s, Harshad Mehta used to be an influential stockbroker who started working as an intermediary to do transactions of RFDs loans with multiple banks. He used to get the funds from concerned banks and invested in the Bombay Stock Exchange to inflate the prices of the shares so that he could sell the shares at a higher margin.

Mr. Harshad Mehta inflated ACC Ltd’s share, which had a market price of Rs200 per share, and take this price to Rs9,000 per share in 3 months. And he started selling these shares to repay his RFD loans to the bank. But as Harshad Mehta increased the shares’ prices artificially, the prices soon started falling, and shares’ prices decreased. Now he could not pay the bank RFD amount, and he scammed many Indian banks with Rs5,000 crores at that time. 

2. Satyam Scam

Mr. Ramalinga Raju was the chairman of SCSL or Satyam Computer Services Ltd, founded in 1987. His company was India’s one of the fastest developing companies and was listed in Bombay Stock Exchange and NYSE in 2001. He was getting smooth growth in his business. Mr. R. Raju decided to buy lands and opened Maytas properties and infrastructure to buy proposed land around metro routes. But to acquire more land, he needed to have more funds; therefore, he inflated the prices of its shares by generating fake sales and manipulating bank statements.

When the share price increased, Mr. Ramalinga Raju also decided to sell his stake and sold 22% of the stake from 24% till 2008. But due to the recession period in 2008, he started suffering from loss, and the fake increment in his company’s revenue revealed the fraud he did in the share market. CBI took action, and Mr. Raju, the chairman of Satyam Computer Service Limited, confessed his scam before SEBI, and he was punished for imprisonment. After some time, Mahindra acquired his company SCSL and changed his name to Mahindra Satyam in 2013; Mahindra Satyam merged into Tech Mahindra. 

3. Ketan Parekh Scam

Ketan Parekh scam is the second biggest stock market scam in India. Ketan was a protege or trainee of Harshad Mehta, and he used to pay orders so that he could scam Indian banks. He started using pump and dump and circular trading techniques to artificially increase the shares’ price of k-10 stocks. Here K-10 he used for the top selected ten companies like Amitabh Bacchan Corp, Zee, and many other selected companies. He became a prominent investor, so he convinced bank officials, so MMCB and GTB could borrow massive amounts of money without collateral.

He took Rs800 crores from MMCB or Madhavpura Mercantile Co-op Bank and Rs100 crores from Global Trust Bank, whereas banks were allowed to issue loans worth Rs 15 crores only. After some time, banks were unable to pay their depositors. Therefore, the RBI held a team and started an investigation. Mr. Parikh hid till 2017, but he confessed he did this scam worth Rs40,000 crores. 

4. The C R Bhansali Scam

C R Bhansali Scam is also considered one of the biggest stock market scandals because the chairman of CRB Caps was the mastermind of the 1200 crores scam. Here Mr. Bhansali used to borrow money from public FDs, Debentures, MFs, and non-existing firms. They invested in the share market for personal profits. However, this manipulation in the stock market came on in 1997. However, for many years he and his family members escaped to Hong Kong. But after some years, they came back and surrendered for their crime. 

5. NSEL Scam

If you have been dealing with a share for many years, you may have heard about the Jignesh shah NSEL Scam, which came in 2013. NSEL or National Spot Exchange Ltd was the company that used to be promoted by NAFE and Financial Technologies India. It was the company that provided a digital platform for farmers and traders to do trading. However, it was revealed that most of the products or commodities listed on site and papers do not exist in their warehouse. Due to this scam, around 13000 investors faced loss on their investment and lost their money too. In this biggest stock market scam, the directors and promoters of NSEL Scammed for Rs5,600 crores. 

6. Saradha Scam

Saradha Group was a chit fund company, and Sudipta Sen was chairman of this company. And they used to operate this business to provide a plethora of share market investment programs. Their Ponzi program to investment was different because it did not use any systematic channel for the investment. It used this program to cheat millions of investors around the share market. They gathered a big fund from the innocent investors of Assam, Odisha, West Bengal, and Jharkhand. This fund was utilized in setting up a real estate firm, media industry, and various other projects. In April 2013, this scam came before among the other people.

However, the scam did not have any direct impact on the share market and its performance. But due to this, the foreign institutional investors started hesitating to take an interest in the Indian share market. They might be worrying about Ponzi schemes that can be floated in this entire share market. 

Conclusion

SEBI was established in the early 1990s; it administers and regulates the share market for smooth functioning from that time to now. Although still, several scams happen in the share market due to loopholes. However, to fix this, SEBI launched some new acts and guidelines to make a healthy trading environment.

So, in a blog, we discussed some of the stock market scams in India. I hope you loved to know this exciting thing about the Indian stock market. If you have something in your trading mind, comment below to share your perspective about these stock market scandals.

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