Major Securities Scams in India

There have been many occasions in the past where some people have taken advantages of knowledge of how the system works and manipulated the system to gain huge amount of money for themselves or their organization. While many of these cases do not come to public, the major ones that have been disclosed in public have shown the enormity of the scale at which these perpetuators have operated and the weakness of our system to stop them or catch them early. To get an idea of the size of these frauds let us have a look at India’s one of the most famous scam. Harshad Mehta’s securities scam, which came into light in 1992, involved misappropriation of funds well above 3500 crores INR (about a billion USD in 1992). The aftermath of this scam led to investors losing more than 100,000 crore INR (about 25 to 30 billion USD) in 2 months in stock market. Though after this scam regulation were strengthened and legal penalty was given to the accused, yet the steps were not enough to avoid another major scam which shook the markets. This time it was Ketan Parekh in 2001 and the scale of the damages were similar. And recently in 2009 another major scam came into public and shook the already feeble markets: the Satyam Accounting Fraud to the tune of 7000 crore INR (about 1.5 billion USD). The reoccurrence of these scams may suggest the lacuna in the current regulatory system which provides the scope for such practices.

There is always information asymmetry between different players in the financial markets. This being a necessary part of the system cannot be eliminated. However, appropriate rules and regulations can be put in place to prevent the misuse of this information asymmetry by any players. Rules for insider trading are in place in almost every country; still these can’t be fool-proof.

Year	Major Victims	Size of scam	Major accused
1991/92	Investors in related shares	Rs. 3500 crores	Harshad Mehta
	State Bank of Saurashtra	Investors lost market value
	SBI Caps	to the tune of 100,000 crores
	Standard Chartered Bank	rupees
	National Housing Bank
2001	Investors in related shares	~ Rs. 3000 crores	Ketan Parekh
	Calcutta Stock Exchange	20,000 crores rupees lost in
	UTI	the market capitalization
	MMCB
2008/09	Satyam Computers Ltd.	~Rs. 7000 crores (approx. $1.5 b USD)	B. Raju