Stock Market Scams in

INTRODUCTION

Introduction Financial scams have a habit of cropping up with an alarming regularity in the Indian financial system. We have reconciled to financial irregularities to such an extent that we simply do not pay heed to smaller scams that take place around us on a daily basis. I am, or rather was, a part of the financial machinery for a few years, and trust me even the private sector is not entirely free of the machinations of unscrupulous and enterprising scamsters. The scope of the money involved multiplies manifold in the public sector, with a corresponding drop in accountability.

India has seen some of the most high-profile scandals where investors have lost billions of rupees just because a few people in high places could not control their greed. The Satyam Computer Services is neither the first nor will it be the last corporate scam to have hit India, so investors must be on guard and ask for more information before making any investment decision, says former Sebi chairman M Damodaran.

But with corporates, brokers, banks, politicians, regulators colluding at times, many a multi- crore scam has hit India. And the saga is likely to go on.

India has seen some of the most high-profile scandals where investors have lost billions of rupees just because a few people in high places could not control their greed.

Over the Years there have been numerous fraud and scandals in the Indian Stock Market. These scams have had a very major impact on the stock markets. A very in-depth knowledge of all the scams is still not available. However, let us study and understand a few of the scams as follows:

 THE SATYAM SCAM:

The Satyam Computer Services fraud is neither the first nor will it be the last corporate scam to have hit India, so investors must be on guard and ask for more information before making any investment decision, says former Sebi chairman M Damodaran.

1 Stock Market Scams in India

The biggest corporate scam in India has come from one of the most respected businessmen.

Satyam founder By Ramalinga Raju resigned as its chairman after admitting to cooking up the account books.

His efforts to fill the "fictitious assets with real ones" through Maytas acquisition failed, after which he decided to confess the crime.

With a fraud involving about Rs 8,000 crore (Rs 80 billion), Satyam is heading for more trouble in the days ahead.

On Wednesday, India's fourth largest IT company lost a staggering Rs 10,000 crore (Rs 100 billion) in as investors reacted sharply and dumped shares, pushing down the scrip by 78 per cent to Rs 39.95 on the Bombay .

The NYSE-listed firm could also face regulator action in the US.

"I am now prepared to subject myself to the laws of the land and face consequences thereof," Raju said in a letter to SEBI and the Board of Directors, while giving details of how the profits were inflated over the years and his failed attempts to "fill the fictitious assets with real ones."

Raju said the company's balance sheet as of September 30 carries "inflated (non-existent) cash and bank balances of Rs 5,040 crore (Rs 50.40 billion) as against Rs 5,361 crore (Rs 53.61 billion) reflected in the books."

Satyam On a cold January morning in 2009, Ramalinga Raju , chairman of Satyam Computer Services, admitted to falsification in the company accounts and various other irregularities, and sent a chill down the collective spine of the Indian financial system. Coming on the back of the global recession, this incident promised to bust the Indian outsourcing industry and the stock market, but for some deft bailout work by the government. The matter is still under investigation and litigation, and the true extent of the scam will be known in the future, perhaps. Mr Raju himself had admitted to irregularities worth around Rs 12,000 crores . The Satyam Computer Services scandal was a corporate scandal that occurred in India in 2009 where chairman Ramalinga Raju confessed that the company's accounts had been falsified. The 2 Stock Market Scams in India

Global corporate community was shocked and scandalised when the chairman of Satyam, Ramalinga Raju resigned on 7 January 2009 and confessed that he had manipulated the accounts by US$1.47-Billion. PricewaterhouseCoopers was the statutory auditor of Satyam Computer Services when the report of scandal in the account books of Satyam Computer Services was broke out. The Indian arm of PwC was fined $6 million by US Securities and Exchange Commission for not following the code of conduct and auditing standards while pursuing its duties while auditing the accounts of Satyam Computer Services

Ramalingam Raju along with 2 other accused of the scandal, had been granted bail from Supreme court on 4 November 2011 as the investigation agency CBI failed to file the chargesheet even after more than 33 months Raju being arrested.

Raju had appointed a task force to address the Maytas situation in the last few days before revealing the news of the accounting fraud. After the scandal broke, the then-board members elected Ram Mynampati to be Satyam's interim CEO. Mynampati's statement on Satyam's website said:

"We are obviously shocked by the contents of the letter. The senior leaders of Satyam stand united in their commitment to customers, associates, suppliers and all shareholders. We have gathered together at Hyderabad to strategize the way forward in light of this startling revelation."

On 10 January 2009, the Company Law Board decided to bar the current board of Satyam from functioning and appoint 10 nominal directors. "The current board has failed to do what they are supposed to do. The credibility of the IT industry should not be allowed to suffer." said Corporate Affairs Minister Prem Chand Gupta. Chartered accountants regulator ICAI issued show-cause notice to Satyam's auditor PricewaterhouseCoopers (PwC) on the accounts fudging. "We have asked PwC to reply within 21 days," ICAI President Ved Jain said.

On the same day, the Crime Investigation Department (CID) team picked up Vadlamani Srinivas, Satyam's then-CFO, for questioning. He was arrested later and kept in judicial custody.

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On 11 January 2009, the government nominated noted banker Deepak Parekh, former NASSCOM chief Kiran Karnik and former SEBI member C Achuthan to Satyam's board.

Analysts in India have termed the Satyam scandal India's own Enron scandal. Some social commentators see it more as a part of a broader problem relating to India's caste-based, family- owned corporate environment.

Immediately following the news, Merrill Lynch (now a part of Bank of America) and State Farm Insurance terminated its engagement with the company. Also, Credit Suissesuspended its coverage of Satyam. It was also reported that Satyam's auditing firm PricewaterhouseCoopers will be scrutinised for complicity in this scandal. SEBI, the stock market regulator, also said that, if found guilty, its license to work in India may be revoked.[5][6][7][8][9] Satyam was the 2008 winner of the coveted Golden Peacock Award for Corporate Governance under Risk Management and Compliance Issues,[10] which was stripped from them in the aftermath of the scandal.[11] The New York Stock Exchangehas halted trading in Satyam stock as of 7 January 2009.[12] India's National Stock Exchange has announced that it will remove Satyam from its S&P CNX Nifty 50-share index on 12 January. The founder of Satyam was arrested two days after he admitted to falsifying the firm's accounts. Ramalinga Raju is charged with several offences, including criminal conspiracy, breach of trust, and .

Satyam's shares fell to 11.50 rupees on 10 January 2009, their lowest level since March 1998, compared to a high of 544 rupees in 2008. In Satyam shares peaked in 2008 at US$29.10; by March 2009 they were trading around US$1.80.

The Indian Government has stated that it may provide temporary direct or indirect liquidity support to the company. However, whether employment will continue at pre-crisis levels, particularly for new recruits, is questionable.

On 14 January 2009, Price Waterhouse, the Indian division of PricewaterhouseCoopers, announced that its reliance on potentially false information provided by the management of Satyam may have rendered its audit reports "inaccurate and unreliable".

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On 22 January 2009, CID told in court that the actual number of employees is only 40,000 and not 53,000 as reported earlier and that Mr. Raju had been allegedly withdrawing 200 million (US$3 million) every month for paying these 13,000 non-existent employees

On 13 April 2009, via a formal public auction process, a 46% stake in Satyam was purchased by Mahindra & Mahindra owned company Tech Mahindra, as part of its diversification strategy. Effective July 2009, Satyam rebranded its services under the new Mahindra management as "Mahindra Satyam". After a delay due to tax issues Tech Mahindra announced its merger with Mahindra Satyam on 21 March 2012, after the board of two companies gave the approval. The companies are merged legally on 25 June 2013

 HARSHAD MEHTA

He was known as the 'Big Bull'. However, his bull run did not last too long.

He triggered a rise in the Bombay Stock Exchange in the year 1992 by trading in shares at a premium across many segments.

Taking advantages of the loopholes in the banking system, Harshad and his associates triggered a securities scam diverting funds to the tune of Rs 4000 crore (Rs 40 billion) from the banks to between April 1991 to May 1992.

Harshad Mehta worked with the New India Assurance Company before he moved ahead to try his luck in the stock markets. Mehta soon mastered the tricks of the trade and set out on dangerous game plan.

Mehta has siphoned off huge sums of money from several banks and millions of investors were conned in the process. His scam was exposed, the markets crashed and he was arrested and banned for life from trading in the stock markets. He was later charged with 72 criminal offences.

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A Special Court also sentenced Sudhir Mehta, Harshad Mehta's brother, and six others, including four bank officials, to rigorous imprisonment (RI) ranging from 1 year to 10 years on the charge of duping State Bank of India to the tune of Rs 600 crore (Rs 6 billion) in connection with the securities scam that rocked the financial markets in 1992. He died in 2002 with many litigations still pending against him.

KETAN PAREKH

Ketan Parekh followed Harshad Mehta's footsteps to swindle crores of rupees from banks. A chartered accountant he used to run a family business, NH Securities. Ketan however had bigger plans in mind. He targeted smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and bought shares in fictitious names. His dealings revolved around shares of ten companies like Himachal Futuristic, Global Tele- Systems, SSI Ltd, DSQ Software, Zee Telefilms, Silverline, Pentamedia Graphics and Satyam Computer (K-10 scrips).

Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his ambitions. Ketan along with his associates also managed to get Rs 1,000 crore from the Madhavpura Mercantile Co- operative Bank.

According to RBI regulations, a broker is allowed a loan of only Rs 15 crore (Rs 150 million). There was evidence of price rigging in the scrips of Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer.

Securities Scam Ketan Parekh – That our system never learns its lessons was proved by this scam. Ketan Parkekh , a qualified CA, and a stock broker, identified a number of stocks (popularly called the K-10), and took up huge positions in these. For this purpose, he used a large number of Benami accounts and smaller stock exchanges, such as the Kolkata and Ahmedabad stock exchanges. He also borrowed heavily from banks such as Global Trust Bank and Madhavpura Mercantile Cooperative Bank. Unfortunately, he was stuck in a bear cartel, and was soon pounded to pulp on the stock exchange. The extent of the scam was estimated to be around Rs 1,500 crores

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 C R BHANSALI (CRB SCAM)

The Bhansali scam resulted in a loss of over Rs 1,200 crore (Rs 12 billion).

He first launched the finance company CRB Capital Markets, followed by CRB Mutual Fund and CRB Share Custodial Services. He ruled like a financial wizard 1992 to 1996 collecting money from the public through fixed deposits, bonds and debentures. The money was transferred to companies that never existed.

CRB Capital Markets raised a whopping Rs 176 crore in three years. In 1994 CRB Mutual Funds raised Rs 230 crore and Rs 180 crore came via fixed deposits. Bhansali also succeeded to raise about Rs 900 crore from the markets.

However, his good days did not last long, after 1995 he received several jolts. Bhansali tried borrowing more money from the market. This led to a financial crisis.

It became difficult for Bhansali to sustain himself. The Reserve Bank of India (RBI) refused banking status to CRB and he was in the dock. SBI was one of the banks to be hit by his huge defaults

CRB Scam This scam took place in the years 1992-1996, the period immediately following the Harshad Mehta fallout. This makes the scam even all the more daring and surprising. CR Bhansali , the perpetrator of this scam, floated more than 100 companies, such as CRB Mutual Funds and CRB Capital Markets. The primary purpose of these companies was to attract huge funds from the public by promising high rates of interest. This interest was later paid form further borrowings, and so on. In 1995, the stock market collapsed, and this proved to be the undoing of CR Bhansali . He was investigated, and later arrested. After a brief 3-month stint in jail, he has disappeared without a trace, and nobody is asking!

7 Stock Market Scams in India

C R Bhansali’s web of deceit was elaborate. He had floated 133 companies to pull in funds and suck them out. Money came easy; he was inspiring with his grandiose plans, high interest rates and entry into mutual fund and banking. CRB’s meteoric rise in the early 90s coincided with the boom in the Non-Banking Finance Company (NBFC) sector. His fall in 1996 was equally fast.

Forget investors, even credit-rating agencies didn’t see it coming. CARE, a leading agency, gave ‘AAA’ rating at a time when the company was going down.

Born in Rajasthan, raised in Kolkata, Bhansali became a dada in the financial capital — Mumbai — before he turned 40.

First came the finance company (CRB Capital Markets), after which the mutual fund (CRB Mutual Fund) and CRB Share Custodial Services followed. Then he planned to get into banking, and he almost made it.

He had a dream run from 1992 to 1996 collecting money from the public through fixed deposits, bonds and debentures. He floated around 133 subsidiaries and unlisted companies. Most of the money was transferred to these dummy companies.

The flagship company, CRB Capital Markets, went public in 1992 and raised a record Rs 176 crore in three years. In 1994 CRB Mutual Funds, through its Arihant Mangal Growth Scheme, raised Rs 230 crore. Another Rs 180 crore came through fixed deposits.

CRB Corporation Ltd raised Rs 84 core through three public issues between May 1993 and December 1995. CRB Share Custodial Services raised a further Rs 100 crore in January 1995 to set up operations.

Between 1992 and 1995, when the market was in the post-Harshad Mehta bear phase, Bhansali managed to raise close to Rs 900 crore.

Post-1995, he got a beating on the stock markets. His investments in the property market did not pay off because of the slump.

8 Stock Market Scams in India

Caught in a financial trap, Bhansali tried borrowing more money from the market. ‘‘To repay the interest rate on amounts he borrowed later, Bhansali was forced to borrow once again. This went on and on, and he got stuck in a financial quicksand,’’ says a former employee, refusing to be named.

Bhansali made a determined effort to get out of the trap by investing in some high-risk ventures. He is believed to have even made a Hindi commercial film. Again, the gamble failed.

In the end, Bhansali was borrowing funds from banks through questionable means. All was well till December 1996. Then the Reserve Bank of India (RBI) refused banking status to CRB and contemplated action for various irregularities.

Pradip Bhavnani, President of National Association of Small Investors, says: ‘‘There was a lot of confusion about how to act against CRB, considering its NBFC status. When he started defaulting, public sector banks like the State Bank of India were the first to be hit. Had the SEBI and RBI acted fast, investors wouldn’t have lost money.’’

Bhansali spent three months in jail in 1997. He is out now but nobody knows where he lives and if they do, they are not snitching.

 COBBLER SCAM

Sohin Daya, son of a former Sheriff of Mumbai, was the main accused in the multi-crore shoes scam. Daya of Dawood Shoes, Rafique Tejani of Metro Shoes, and Kishore Signapurkar of Milano Shoes were arrested for creating several leather co-operative societies which did not exist.

They availed loans of crores of rupees on behalf of these fictitious societies. The scam was exposed in 1995. The accused created a fictitious cooperative society of cobblers to take advantage of government loans through various schemes.

9 Stock Market Scams in India

Officials of the Maharashtra State Finance Corporation, Citibank, Bank of Oman, Dena Bank, Development Credit Bank, Saraswat Co-operative Bank, and Bank of Bahrain and Kuwait were also charge sheeted.

 IPO SCAM

The Securities and Exchange Board of India barred 24 key operators, including India Bulls and Karvy Stock Broking, from operating in the stock market and banned 12 depository participants from opening fresh accounts for their involvement in the Initial Public Offer scam.

It also banned 85 financiers from capital market activities.

Suzlon Energy Ltd's Rs 1,496.34 crore (Rs 14.963 billion) public issue (September 23-29, 2005). The retail portion was oversubscribed 6.04 times and the non-institutional portion was oversubscribed 40.27 times. Key operators used 21,692 fictitious accounts to corner 323,023 shares representing 3.74 per cent of the total number of shares allotted to retail individual investors.

Jet Airways's Rs 1,899.3 crore (Rs 18.993 billion) public offer (Feb 18-24,2005). The retail portion was subscribed 2.99 times and the non-institutional portion by 12.5 times. Key operators used 1186 fake accounts for cornering 20,901 shares representing 0.52 per cent of the total number of shares allotted to retail investors.

National Thermal Power Corporation Ltd's Rs 5,368.14 crore (Rs 53.681 billion) IPO (Oct 7-14, 2004). The retail portion was oversubscribed 3.73 times and the non-institutional portion by 11.93 times. Key operators used a total of 12,853 afferent accounts for cornering 2,750,730 shares representing 1.3 per cent of the total number of shares allotted to retail investors.

Tata Consultancy Services's Rs 4,713.47 crore (Rs 47.134 billion) public offer (Aug 19-23, 2004). The retail portion was oversubscribed 2.86 times and the non-institutional portion by 19.15 times. Key operators used 14,619 'benami' accounts to corner 261,294 shares representing 2.09 per cent of the total shares allotted to retail individual investors.

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Patni Computer System Ltd's Rs 430.65 crore (Rs 4.306 billion) public issue (Jan 27-Feb 5 2004). The retail portion was oversubscribed 9.36 times and the non-institutional portion by 39.22 times. A lone key operator used 2541 afferent account for cornering 127,050 shares representing 2.71 per cent of the total number of shares allotted to retail investors.

DINESH DALMIA

Dinesh Dalmia was the managing director of DSQ Software Limited when the Central Bureau of Investigation arrested him for his involvement in a stocks scam of Rs 595 crore (Rs 5.95 billion).

Dalmia's group included DSQ Holdings Ltd, Hulda Properties and Trades Ltd, and Powerflow Holding and Trading Pvt Ltd.

Dalmia resorted to illegal ways to make money through the partly paid shares of DSQ Software Ltd, in the name of New Vision Investment Ltd, UK, and unallotted shares in the name of Dinesh Dalmia Technology Trust.

Investigation showed that 1.30 crore (13 million) shares of DSQ Software Ltd had not been listed on any stock exchange.

 VIRENDRA RASTOGI

Virendra Rastogi chief executive of RBG Resources was charged with for deceiving banks worldwide of an estimated $1 billion.

He was also involved in the duty-drawback scam to the tune of Rs 43 crore (Rs 430 milion) in India.

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The CBI said that five companies, whose directors were the four Rastogi brothers -- Subash, Virender, Ravinde and Narinder -- exported bicycle parts during 1995-96 to Russia and Hong Kong by heavily over invoicing the value of goods for claiming excess duty draw back from customs.

THE UTI SCAM

Former UTI chairman P S Subramanyam and two executive directors -- M M Kapur and S K Basu -- and a Rakesh G Mehta, were arrested in connection with the 'UTI scam'.

UTI had purchased 40,000 shares of Cyberspace between September 25, 2000, and September 25, 2000 for about Rs 3.33 crore (Rs 33.3 million) from Rakesh Mehta when there were no buyers for the scrip. The market price was around Rs 830.

The CBI said it was the conspiracy of these four people which resulted in the loss of Rs 32 crore (Rs 320 million). Subramanyam, Kapur and Basu had changed their stance on an investment advice of the equities research cell of UTI.

The promoter of Cyberspace Infosys, Arvind Johari was arrested in connection with the case. The officails were paid Rs 50 lakh (Rs 5 million) by Cyberspace to promote its shares.

He also received Rs 1.18 crore (Rs 11.8 million) from the company through a circuitous route for possible rigging the Cyberspace counter.

UTI Scam The UTI scam involved the flagship US-64 scheme of UTI, which was meant to channel the funds of small investors into instruments bearing high returns. Gradually, US-64 developed a investor base of around 2 crore investors. The economic liberalization in India, coupled with the absolute opacity in the operations of UTI, led to a situation wherein the Government was forced to announce a huge bailout of about Rs 3,500-4,000 crores in an order to prevent default in payments to the investors. The consequences of such a situation are unimaginable. But the story does not end here. Later, it turned out that the UTI Chairman 12 Stock Market Scams in India appointed at this time, Mr P S Subramanyam , along with a couple of executive directors, acted wrongly to selectively benefit a powerful coterie of brokers and industrialists, while at the same time, jeopardizing the interest of lakhs of small investors.

 UDAY GOYAL

Uday Goyal, managing director of Arrow Global Agrotech Ltd, was yet another fraudster who cheated investors promising high returns through plantations. Goyal conned investors to the tune of over Rs 210 crore (Rs 2.10 billion). He was finally arrested.

The plantation scam was exposed when two investors filed a complaint when they failed to get the promised returns.

Over 43,300 persons had fallen into Goyal's trap. Several criminal complaints were filed with the Economic Offences Wing.

The company's directors and their relatives had misused the investors' money to buy properties. The High Court asked the company to sell its properties and repay its investors.

 SANJAY AGARWAL

Home Trade had created waves with celebrity endorsements.

But Sanjay Agarwal's finance portal was just a veil to cover up his shady deals. He swindled a whopping Rs 600 crore (Rs 6 billion) from more than 25 cooperative banks.

The government securities (gilt) scam of 2001 was exposed when the Reserve Bank of India checked the acounts of some cooperative banks following unusual activities in the gilt market.

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Co-operative banks and brokers acted in collusion in abid to make easy money at the cost of the hard earned savings of millions of Indians. In this case, even the Public Provident Fund (PPF) was affected.

A sum of about Rs 92 crore (Rs 920 million) was missing from the Seamen's Provident Fund. Sanjay Agarwal, Ketan Sheth (a broker), Nandkishore Trivedi and Baluchan Rai (a Hong Kong- based Non-Resident Indian) were behind the Home Trade scam.

INSURANCE SCAM:

Insurance Scam This scam had originated and prospered in the period immediately following Independence in 1947. At that time, the insurance sector was not nationalized, and a handful of private companies ruled the roost. These companies were more concerned with providing benefits to selected industrialists, and ignored the interests of the common man. The government responded by nationalizing the insurance sector, and the LIC was founded under an special Act passed by the Parliament. This scam laid the foundation of the nationalization culture in India.

HOME TRADE

Home Trade Around the year 2000, a finance portal emerged on the financial landscape, and gained quick recognition on the back of endorsements by personalities like Hrithik Roshan, Sachin Tendulkar and Shahrukha Khan. The portal, owned by Sanjay Agarwal , claimed to deal in gilts. Soon, RBI got suspicious of activities of some cooperative banks in the gilt market, and a scam was uncovered. The same old saga – brokers and bankers combining to rob people of their hard earnings – was repeated. Funds from Seaman’s Provident Fund and PPF were affected. The total scam size was reported to be around Rs 300 crores , and more than Rs 200 crores were spent on publicity costs alone.

 DSQ SOFTWARE:

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DSQ Software Though this scam was modest in terms of money involved (only Rs 600 crores), and did not affect the general public to a great extent, yet it is notable for how it came into being. The main player in the scam was Mr. Dinesh Dalmia, who was the MD of DSQ Software Ltd. This company issued around 1.3 million shares in 2001, and these shares were allotted to four companies on a preferential basis. NSDL, a stock depository, dematerialized and helped in delivering the shares. Nothing wrong in that, except that the shares were not even listed on any stock exchange

The Bofors scandal was a major scandal in India in the 1980s and 1990s, initiated by Congress politicians and implicating the prime minister, and several others who were accused of receiving kickbacks from Bofors AB for winning a bid to supply India's 155 mm field howitzer.[1] The scale of the corruption was far worse than any that India had seen before and directly led to the defeat of Gandhi's ruling party in the November 1989 general elections. The Swedish company paid 640 million (US$9.8 million) in kickbacks to top Indian politicians and key defence officials. The case came into light during 's tenure as defence minister, and was revealed through investigative journalism by a team led by N. Ram of the newspaper . The journalist who secured the over 350 documents that detailed the payoffs was Chitra Subramaniam reporting for The Hindu. Later the articles were published in and The Statesman when The Hindu stopped publishing stories about the Bofors scandal under immense government pressure and Chitra Subramaniam moved to the two newspapers. In an interview with her, published in "The Hoot" in April 2012 on the 25th anniversary of the revelations Sten Lindstrom, former chief of Swedish police discussed why he leaked the documents to her and the role of whistle-blowers in a democracy

EVENTS & INVESTIGATION

On 24 March 1986, a $285 million contract between the Government of India and Swedish arms company Bofors was signed for supply of 410 155mm Howitzer field guns. About a year later,

15 Stock Market Scams in India on 16 April 1987, Swedish Radio alleged that Bofors paid kickbacks to top Indian politicians and key defence officials to seal the deal.

The middleman associated with the scandal was Ottavio Quattrocchi, an Italian businessman who represented the petrochemicals firm Snamprogetti.

Quattrocchi was reportedly close to the family of Rajiv Gandhi and emerged as a powerful broker in the 1980s between big businesses and the Indian government. While the case was being investigated, Rajiv Gandhi was assassinated on 21 May 1991 for an unrelated cause by the LTTE. In 1997, the Swiss banks released some 500 documents after years of legal battle. On 22 October 1999 (when National Democratic Alliance government led by the was in power) the Central Bureau of Investigation (CBI) filed the first chargesheet against Quattrocchi, Win Chadha, Rajiv Gandhi, the defence secretary S. K. Bhatnagar and a number of others. In second half of 2001, Win Chadha and S. K. Bhatnagar died.

On 10 June 2002, Delhi High Court quashed all proceedings in the case so far. However, this was reversed by Supreme Court of India on 7 July 2003.

Meanwhile the central government changed and Indian National Congress came to power after 2004 Lok Sabha elections. On 5 February 2004, the Delhi High Court quashed the charges of bribery against Rajiv Gandhi and others, On 31 May 2005, the Delhi High Court dismissed the allegations against the British business brothers, Shrichand, Gopichand and Prakash Hinduja, but charges against others remain. In December 2005, Mr. B. Daat, the Additional Solicitor General of India, acting on behalf of the Indian Government and the CBI, requested the British Government that two British bank accounts of Ottavio Quattrocchi be unfrozen on the grounds of insufficient evidence to link these accounts to the Bofors payoff. The two accounts, containing €3 million and $1 million, had been frozen. On 16 January, the Indian Supreme Court directed the Indian government to ensure that Ottavio Quattrocchi did not withdraw money from the two bank accounts in London. The CBI, the Indian federal law enforcement agency, on 23 January 2006 admitted that roughly Rs 210 million, about US $4.6 million, in the two accounts have already been withdrawn by the accused. The British government released the funds later.

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However, on 16 January 2006, CBI claimed in an affidavit filed before the Supreme Court that they were still pursuing extradition orders for Quattrocchi. The Interpol, at the request of the CBI, has a long-standing red corner notice to arrest Quattrocchi. Quattrocchi was detained in Argentina on 6 February 2007, but the news of his detention was released by the CBI only on 23 February. Quattrocchi was released by Argentinian police. However, his passport was impounded and he was not allowed to leave the country.

As there was no extradition treaty between India and Argentina, the case was presented in the Argentine Supreme Court. The government of India lost the extradition case as the government of India did not provide a key court order which was the basis of Quattrocchi's arrest. In the aftermath, the government did not appeal this decision because of delays in securing an official English translation of the court's decision.

A Delhi court provided temporary relief for Quattrocchi from the case, for lack of sufficient evidence against him, on 4 March 2011. However the case is still going on.

On 12th July 2013, Quattrochi died of a heart attack in .

Despite the controversy the Bofors gun was used extensively as the primary field artillery during the Kargil War with Pakistan and gave India 'an edge' against Pakistan according to battlefield commanders

SCAM

Microcap stock fraud is a form of involving stocks of "microcap" companies, generally defined in the United States as those with a market capitalization of under $250 million. Its prevalence has been estimated to run into the billions of dollars a year.[1][2][3]Many microcap stocks are penny stocks, which the SEC defines as a security that trades below $5 per share, is not listed on a national exchange, and fails to meet other specific criteria.[4]

Microcap stock fraud generally takes place among stocks traded on the OTC Bulletin Board and the Pink Sheets Electronic Quotation Service, stocks which usually do not meet the requirements to be listed on the stock exchanges. Some fraud occurs among stocks traded on the NASDAQ Small Cap Market, now called the NASDAQ Capital Market. 17 Stock Market Scams in India

Microcap fraud encompasses several types of investor fraud:

• schemes, involving use of false or misleading statements to hype stocks, which are "dumped" on the public at inflated prices. Such schemes involve and .

• Chop stocks, which are stocks purchased for pennies and sold for dollars, providing both brokers and stock promoters massive profits. Brokers are often paid "under the table" undisclosed payoffs to sell such stocks.

• Dump and dilute schemes, where companies repeatedly issue shares for no reason other than taking investors' money away. Companies using this kind of scheme tend to periodically reverse-split the stock.

• Other unscrupulous brokerage practices, including "bait and switch," unauthorized trading, and "no net sales" policies in which customers are prohibited or discouraged from selling stocks.

Pump & Dump

Many penny stocks, particularly those that trade for fractions of a cent, are thinly traded.

They can become the target of stock promoters and manipulators. These manipulators first purchase large quantities of stock, then artificially inflate the share price through false and misleading positive statements. This is referred to as a "pump and dump" scheme. The pump and dump is a form of microcap stock fraud. In more sophisticated versions of the fraud, individuals or organizations buy millions of shares, then use newsletter websites, chat rooms, stock message boards, press releases, or e-mail blasts to drive up interest in the stock. Very often, the perpetrator will claim to have inside information about impending news to persuade the unwitting investor to quickly buy the shares. When buying pressure pushes the share price up, the rise in price entices more people to believe the hype and to buy shares as well.

18 Stock Market Scams in India

Eventually the manipulators doing the "pumping" end up "dumping" when they sell their holdings.

The expanding use of the Internet and personal communication devices has made scams easier to perpetrate. Though not a scam per se, one notable example is rapper 50 Cent's use of to cause the price of a penny stock (HNHI) to increase dramatically. 50 Cent had previously invested in 30 million shares of the company, and as a result made $8.7 million in profit.[9][10] Another example of an activity that skirts the borderline between legitimate promotion and hype is the case of LEXG. Described (but perhaps overstated) as "the biggest stock promotion of all time", Lithium Exploration Group's market capitalization soared to over $350 million, after an extensive direct mail campaign. The promotion drew upon the legitimate growth in production and use of lithium, while touting Lithium Exploration Groups position within that sector. According to the company's December 31, 2010 form 10-Q (filed within months of the direct mail promotion), LEXG was a lithium company without assets. Its revenues and assets at that time were zero. Subsequently, the company did acquire lithium production/exploration properties, and addressed concerns raised in the press.

Penny stock companies often have low liquidity. Investors may encounter difficulty selling their positions after the buying pressure has abated, and the manipulators have fled.

Fraud in Popular Culture

Microcap stock fraud has been explored in several books and movies.

A book that explored microcap fraud was the 2003 book Born to Steal by . It described the microcap underworld of the 1990s through the eyes of a young broker named Louis Pasciuto. Although the book focuses on Mafia infiltration of brokerages, it also describes in detail the operation of microcap fraud.

Microcap fraud was explored in the anonymously written books License to Steal and in The Scorpion and the Frog. Both books explore pump and dump schemes in some detail but, unlike Born to Steal, do not provide the real names of the specific firms and people described.

This kind of fraud has also provided the title for a book by Robert H. Tillman and Michael L. Indergaard called Pump and Dump: The Rancid Rules of the New Economy.

19 Stock Market Scams in India

A fictional account of pump and dump schemes can be seen in the movie . According to press accounts, the director and writer of the film worked briefly as a cold-caller for the brokerage house, which was shut down by regulators in the late 1990s.

A pump and dump scam was also the subject of several episodes of the popular HBO series, , pulled off by Matthew Bevilaqua and Sean Gismonte.

On an episode of the legal drama Law & Order, entitled "Trade This," the murder of a young stockbroker at a prestigious firm is found to be related to his boss's involvement in several pump and dump scams financed by members of a Mafia crime family. Similarly, in the franchise's first computer game, Law & Order: Dead on the Money, the victim is a female stockbroker who was being investigated for a pump and dump scam involving a biotech company's suspicious IPO. This strategy was also fictionalized by Jeffrey Archer in his book Not a Penny More, Not a Penny Less.

Stock Regulation

One method of regulating and restricting pump and dump manipulators, is to target the category of stocks most often associated with this scheme. To that end, penny stocks have been the target of heightened enforcement efforts. In the United States, regulators have defined a penny stock as a security that must meet a number of specific standards. The criteria include price, market capitalization, and minimum shareholder equity. Securities traded on a national stock exchange, regardless of price, are exempt from regulatory designation as a penny stock, since it is thought that exchange traded securities are less vulnerable to manipulation. Therefore, Citi Group (NYSE:C) and other NYSE listed securities which traded below $1.00 during the market downturn of 2008-2009, while properly regarded as "low priced" securities, were not technically "penny stocks".

Although penny stock trading in the United States is now primarily controlled through rules and regulations enforced by the U.S. Securities and Exchange Commission and Financial Industry Regulatory Authority (FINRA), the genesis of this control is found in State securities law. The State of Georgia was the first state to codify a comprehensive penny stock securities law. Secretary of State Max Cleland, whose office enforced State securities laws was a principal proponent of the legislation.

20 Stock Market Scams in India

Representative Chesley V. Morton, the only stockbroker in the Georgia General Assembly at the time, was principal sponsor of the bill in the House of Representatives. Georgia's penny stock law was subsequently challenged in court. However, the law was eventually upheld in U.S. District Court, and the statute became the template for laws enacted in other states. Shortly thereafter, both FINRA and the SEC enacted comprehensive revisions of their penny stock regulations. These regulations proved effective in either closing or greatly restricting broker/dealers, such as Blinder, Robinson & Company, which specialized in the penny stocks sector. Meyer Blinder was jailed for securities fraud in 1992, after the collapse of his firm. However, sanctions under these specific regulations lack an effective means to address pump and dump schemes perpetrated by unregistered groups and individuals.

CONCLUSION

Over the years, there have been more and more of the incidents of the rise in the scams in the stock markets.

All these scams are the results of the fault & greed of the scamsters who advertantly act in a manner which is detrimental to the interest of the society as whole.

These although may seem to be civil offences but their impact on the economy is very large and in a chain procedure.

The growth and the development of the economy is hampered as a result of these malpractices by the scamsters. However, the regulation / regulatory body have not been able to cut off the lines and reduce the effect of the scams and also have failed in certain aspects of controlling and monitoring the market and the stocks.

21 Stock Market Scams in India

BIBLIOGRAPHY

• http://ismb-india.blogspot.in/2009/01/indias-biggest-scams.html

• http://www.authorstream.com/Presentation/chhotu007-1349047-top-10-financial-scams- india/

• http://www.indiaforensic.com/CRBhansali.htm

• ismb-india.blogspot.com/2009/01/indias-biggest-scams.html

• http://in.finance.yahoo.com/photos/revealed-india-s-major-corruption-scams- controversial-deals-slideshow/

• http://www.masterandstudent.com/2009/12/biggest-scams-in-indian-stock-markets.html

• http://www.niticentral.com/2013/06/13/25-corruption-scandals-that-shamed-india- 89069.html

• articles.timesofindia.indiatimes.com › Collections › Film

22 Stock Market Scams in India

• http://www.slideshare.net/one2million/stockmarketscam

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• https://www.google.co.in/url? sa=t&rct=j&q=&esrc=s&source=web&cd=13&cad=rja&ved=0CFwQFjAM&url=http %3A%2F%2Findiatoday.intoday.in%2Fstory%2Fc.r.-bhansalis-conduct-is-in-line-with- that-of-harshad-mehta-and-pawan-sachdeva %2F1%2F276107.html&ei=GDRAUs3PBsvLrQf0jICIAQ&usg=AFQjCNGgsOcoz1ym Ds5n8Rk1eFZCYeOaeg&bvm=bv.52434380,d.bmk

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