Scams in securities markets and Role of SEBI
Group Members
• Tara Jain 11• Payal Kothari 12• Pramil Malde 13• Sagar Nagda 14• Raj Padharia 15
HARSHAD MEHTA
THE BIG BULL
• Started his career with New India
Assurance Co.
• Quit his job in 1981 to become sub-broker.
• Went bankrupt in 1982 & recovered soon
to become stronger.
• Went on to become one of the most
successful broker- The Rags To Riches
Story, thereby earning the nick name of
“THE BIG BULL”
WHAT WAS THE SCAM ALL ABOUT
• Diversion of funds• Use of Ready Forward(RF) to
maintain Statutory Liquidity Ratio(SLR)
• Creative Accounting• Intra-day Trading
EXPLOITING THE LOOPHOLE IN THE BANKING SYSTEM
• He triggered in 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
Rs4000 cr from banks to stockbrokers between
April 1991 to May 1992.
HIS FAVORITE STOCKS INCLUDED
• ACC
• APOLLO TYRES
• REPLIANCE
• TATA IRON AND STEEL CO.(TISCO)
• BPL
• STERLITE
• VIDEOCON.
Ketan Parekh
O
ne Mans Arm
y Scam
KETAN PAREKH
• C.A by profession - comes from broking family
background
• Popularly known as Pentafour Bull
• Known for K-10 series of stocks
THE K-10 STOCKS
•Amitabh Bachchan Corporation Limited (ABCL)
•Mukta Arts
•Tips
•Pritish Nandy Communications
•HFCL
•Global Telesystems
•Zee Telefilms
•Crest Communication
•Penta Media Graphics
•The Pay Order Route
•Borrowing from Madhavpura Mercantile Co-operative Bank.
WAYS HE FUNDED THE SCAMS
HOW THE SCAM BROKE OUT?
•His modus operandi for raising funds worked well as long as share prices soared up but it reversed when the markets started crashing in March,2000.
•K-10 stocks declined by 67%
•Liquidity problems
•CSE payment crisis
IPO SCAM
Current account opened
Sole person authorised
Identity disguised
Multiple accounts opened
Huge funds transferred
Accounts opened in fictitious name
Suzlon Energy IPO: Rs 1,496.34 cr (September 23-
29, 2005)
Jet Airways IPO: Rs 1899.3 crore (Feb 18-24,
2005)
National Thermal Power Corporation IPO Rs
5,368.14 crore (Oct 7-14, 2004).
Tata Consultancy Services IPO: Rs 4,713.47 crore
ROLE OF DEPOSITORY PARTICIPANTS
• Photographs not obtained
• Proper introductions not obtained
• Signatures not taken in the presence of bank official
• Failure to independently verify the identity and address
of all joint account holders
• Directors identity/ address not verified
• Customer Due Diligence done by a subsidiary
FACTORS THAT FACILITATED THE SCAM
SEBI
ESTABLISHMENT OF SEBI
The Securities and Exchange Board of
India was established on April 12, 1992
PREAMBLE
The Preamble of the Securities and Exchange Board of India
describes the basic functions of the Securities and
Exchange Board of India as
“…..to protect the interests of investors in securities
and to promote the development of, and to regulate
the securities market and for matters connected
therewith or incidental thereto”
Role of SEBI in Indian Capital Markets
1. Power to make rules for controlling stock exchange
2. To provide license to dealers and brokers
3. To Stop fraud in Capital Market 4. To Control the Merger, Acquisition
and Takeover the companies 5. To audit the performance of stock
market
6. To make new rules on carry -
forward transactions
7. To create relationship with ICAI
8. Introduction of derivative
contracts on Volatility Index
9. To Require report of Portfolio
Management Activities
10. To educate the investors
ACTIONS OF SEBI
• The trading cycle was cut short from a
week to a day
• Introduced forward trading in the form
of exchange-traded derivatives
• Bars 26 Ketan Parekh 'conduits'
• Barred 24 key operators, including
Indiabulls and Karvy Stock Broking
• Banned 12 depository participants from
opening fresh accounts for their
involvement in the Initial Public Offer
scam.
• Banned 85 financiers from capital market
activities.
ACTIONS OF SEBI
Measures to prevent scamsMEASURES TO PREVENT SCAM
Strengthen the legal and administrative
framework of public governance system
Stricter norms for corporate
governance to be set by bodies like
Association of CA’s
a. Bringing transparency
b. Bringing accountability
Criticism of SEBI
Only priority was to prevent a fall in stock
prices.
Banned short sales and increased margins
Fired all broker directors from the Bombay
Stock Exchange and Calcutta Stock
Exchange
Launched an inquiry into their alleged short
sales.
CRITICISMS OF SEBI
THANK YOU