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