CAPITAL MARKET SCAMS : CAPITAL MARKET SCAMS OVERVIEW : OVERVIEW CAPITAL MARKET
CAPITAL MARKET SCAM
KETAN PAREKH CAPITAL MARKET ? : CAPITAL MARKET ? The capital market is the market for securities, where companies and govt. can raise long term funds. It is a market in which money is lent for periods longer than a year. The capital market includes the stock market and the bond market Slide 4: It is basically fraud done in the Capital market with the investors by manipulating the facts in order to attain enormous profits. What is Capital Market scam? INTRODUCTION TO THE “BIG BULL OF THE TRADING FLOOR”. : INTRODUCTION TO THE “BIG BULL OF THE TRADING FLOOR”. The Great Indian Scam-1992 : The Great Indian Scam-1992 Who is this man? : Who is this man? HARSHAD MEHTA- story
Started his career with New India Assurance Co.
Quit his job in 1981 to become a sub-broker.
Went bankrupt in 1982 & recovered soon to become more stronger.
Went on to become one the most successful broker – The Rags to Riches Story, thereby earning the nick name of “THE BIG BULL” What was the SCAM all about? : What was the SCAM all about? Diversion of funds
Use of Ready Forward (RF) to maintain SLR (Statutory Liquidity Ratio)
Intra-day Trading Slide 9: 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 stockbrokers between April 1991 to May 1992. Exploiting the loophole in the banking system Slide 10: Mehta soon mastered the tricks of the trade by managing several brokers 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. How it was done & role of the broker ? Slide 11: He was later charged with 72 criminal offences. 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. Major culprits – Brokers, Bankers, Financial institutions, Bureaucrats, etc. His favorite stocks included : His favorite stocks included • ACC • Apollo Tyres • Reliance • Tata Iron and Steel Co. (TISCO) • BPL • Sterlite • Videocon. Market at Harshad Mehta scam : Market at Harshad Mehta scam HARSHAD MEHTA : THE SCAMSTER. : HARSHAD MEHTA : THE SCAMSTER. The End of the BULL Story : The End of the BULL Story Lifestyle (flashy cars & life like a celebrity)
31st December 2001 – The Death Of The Bull
Forever remembered as the Architect of the Rs.50 billion Scam THE FOLLOWER OF THE “BIG BULL” : THE FOLLOWER OF THE “BIG BULL” Introduction : Introduction C.A by profession-comes from broking family background.
Popularly known as the Pentafour Bull
Known for his K10 series of stocks. KETAN PAREKH THE K-10 STOCKS : THE K-10 STOCKS Amitabh Bachchan Corporation Limited (ABCL)
Pritish Nandy Communications.
Global Telesystems (Global)
PentaMedia Graphics Slide 19: 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 targetted smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and bought shares in fictitious names. WAYS HE FUNDED HIS SCAM : WAYS HE FUNDED HIS SCAM THE PAY ORDER ROUTE
KP issued cheques drawn on BoI (Bank of India) to MMCB (Madhavapura Mercantile Cooperative Bank), against which MMCB issued pay orders. The pay orders were discounted at BoI. It was alleged that MMCB issued funds to KP without proper collateral security and even crossed its capital market exposure limits. THE PAY ORDER ROUTE : THE PAY ORDER ROUTE KP reportedly used his BoI accounts to discount 248 pay orders worth about Rs 24 billion between January and March 2001. BoI's losses eventually amounted to well above Rs 1.2 billion. WAYS HE FUNDED HIS SCAM : WAYS HE FUNDED HIS SCAM BORROWING FROM MMCB
The second route was borrowing from a MMCB branch at Mandvi (Mumbai), where different companies owned by KP and his associates had accounts.KP used around 16 such accounts, either directly or through other broker firms, to obtain funds. Slide 23: Ketan borrowed Rs 250 crore from Global Trust Bank to fuel his ambitions. Ketan alongwith 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. HOW THE SCAM BROKE OUT? : HOW THE SCAM BROKE OUT? His mode of raising funds by offerings shares as collateral securities worked well
but….. Slide 25: Only till the prices of shares went up
but it reversed when shares started falling from mar 2000.
The crash was a result of fall at NASDAQ that saw a fall in K-10 stock as well
In next 2 months, sensex declined by 23% and K-10 stock declined by 67% WHAT NEXT? : WHAT NEXT? In May 2000, the market picked up back and the prices of K-10 rise again
The prices of stock doubled like
HFCL doubled from Rs 790 to Rs 1353 by July THE FINAL TURN AROUND : THE FINAL TURN AROUND BY Dec.2000
the NASDAQ fell back again and the KP stocks went down as the prices of stock falling globally Cont….. : Cont….. KP faced liquidity problems
The CSE has payment crises and was a set back for KP because of three reasons which are- THE DOWN FALL : THE DOWN FALL Stocks held by KP and his broker were reduced to 6-7 bn from 12bn
Situation worsened when KPs badla payment was not honored and 70 CSE brokers along with top 3 brokers made default
By mid March the value of shares went to 2.5-3 bn. THE END : THE END KPs brokers started pressuring him for payment.
SEBI tricked the regulatory norms and several other rules were framed
Finally KP was arrested. Market at Ketan Parekh scam : Market at Ketan Parekh scam Presented by : Presented by Prateek mehta