1.Harshad Mehta Scam: It was one of most talked about scams in Indian stock market. In 1992, Mehta, a stockbroker was found responsible for Rs 4000 crores security scam.
How it was carried out: The scam was carried out by manipulating the stock prices artificially. The modus operandi involved buying heavily across various segments on premium which caused a stellar rise in selective stock prices.
The question was from where the funds were coming to finance such a huge buying?
The funds were given by banks through Ready forward deal, which is a secured short-term loan from one bank to another against government securities which were produced in the form BR ( Banking receipt) to the lending bank .The borrowing bank, which were accomplice of Mehta’s produced fake BRs to the lender bank which in turn, gave huge loans to Mehta.
The plan was going all right till the time it came into light. As soon as the scam exposed, the banks started demanding the money back which caused the worst fall in sensex.
2. Ketan Parekh Scam– Ketan Parekh was a chartered accountant & was know as ‘Bombay bull’ in his good days. He was a trainee under Harshad Mehta who followed his mentor footsteps and in 2001, he was convicted of Rs 800 crore scam.
How it was carried out: The modus operandi was almost similar to Harshad Mehta scam which involved borrowing huge funds from banks/corporate houses using fake pay orders and using the funds to manipulate the share prices.
3. Stayam Scam: The Satyam Computer Services scandal was a corporate scandal that occurred in 2009. The esimated size of the scandal was 14,000 crores.
How it was carried out: Chairman of Satyam Computer Services, B. Ramalinga Raju was involved in this high profile scam which was carried out by modifying company’s accounts to show inflated profits.The accounts were faked for a period of 5 years from 2003-2008.The news broke out as a bad storm on stock market in January, 2009 which led to dramatic fall in price of share resulting to a total loss of more than 13,000 crore in company’s market capitalization in just 2-3 days.
4. NSEL Scam: It is one of the latest scam of Commodity Markets to join the bandwagon. The scam was discovered in July 2013 when NSEL suspended trading in all its commodity contracts..The total size of scam was Rs 5,600 crore & the mastermind behind this was Jignesh Shah.
How it was carried out: NSEL which was a spot exchange illegally offered T+25, T+35 settled contracts. It was offering a very lucrative arbitrage opportunity to commodity traders on paired contracts (T+2 & T+25 settled) which was giving almost 15-20% return per annum. The catch was that underlying commodities were missing & money taken from buyers was used by the 24 borrowers, who had no stock in the warehouses to offer.
As soon as the news of paper trading touched the markets the stock of Financial Technologies , which is the promoter company of NSEL plunged 60-70% in few sessions.