Top 3 Shocking Stock Market Scams in India

scams in India

A scam means making money illegally by tricking people, providing fake documents and fake identity. These scams not only affect a country’s economy but also causes a lot of problems to the government and the common people.

In a country like India financial scams are becoming common these days. Below is the list of 3 biggest stock market scams in India due to which the Indian economy is suffering. 

•Harshad Mehta Scam 

•Ketan Parekh Scam 

•Satyam Computers Scam 

1.Harshad Mehta Scam 

The Harshad Mehta scam is known to be one of the biggest stock market scams in India. Harshad Mehta completed his graduation in 1976. In the early 1980s, Harshad Mehta started reading about the stock market and started his job with some stockbrokers. 

 In 1984 Harshad became stockbroker himself and started his own research and asset management company named Grow More investments. He gained a lot of popularity in 3-4 years and was also called the Amitabh Bachchan of Stock market.  

At that time to maintain liquidity banks were having the option of Ready Forward Deal in which the banks can take a short loan of 15 days from another bank if they were short of funds.

In 1991-1992 these transactions were held very often. Due to lack of technology banks had noted all the transactions manually which was very time consuming and tough. 

A new concept of Bank Receipt was launched to solve this problem. Bank Receipt transaction was held with the help of a broker which also helped brokers to earn their commission.

Harshad Mehta who was himself a broker started looking at loopholes of this. Mehta promised banks higher interest rates and used the money which banks gave him into the stock market. 

He convinced small banks Bank of Karad (BOK) and the Metropolitan Cooperative Bank (MCB) to issue the fake Bank receipts. Since the size of the bank were small Harshad held on the fake receipts as long as he wants and invests in stock markets. As it was showing positive signs of growth, banks started investing more.  

There were many banks like SBI, SBI Caps, NHB, Andhra Bank, etc. which suffered losses and the profitable banks were Bank of America, American Express bank etc.

This led to increasing in several stocks of the stock market. Also, this was leading to a lot of market speculations. This brought the scam to light. The total value of the scam was around Rs 15000 crore. 

After this scam exposed the market crashed and Harshad Mehta was given 9 years sentence and was banned from trading in the stock market. 

2.Ketan Parekh

This scam is known to be the second-biggest stock market scams in India. Ketan Parekh was a CA (Charted Accountant) by profession. Ketan Parekh family was in stockbroking business which was named (NH Securities) so he knew all about stock market trading.  He started his career by working with Harshad Mehta’s Grow More investments.  

Ketan Parekh invested in stocks related to ICM (IT Communication Media). He purchased large stakes in small companies and increase their prices by circular trading. This resulted in a hike in the prices of shares like HFCL group, ZEE, GTL etc, which he called K-10 stocks portfolio. 

Many investors started following Ketan Parekh moves because they believed that everything he touched is turning into gold. He traded in Kolkata Stock Exchange due to lack of regulation in it.

Parekh bought shares of Madhavapura Mercantile Commercial Bank (MMCB) to manipulate its loan decisions. He took huge loans from MMCB in the form of pay orders.  

Ketan Parekh did not trade on his own account instead, he instructed other brokers to hold securities and paid them a commission to do so. In March 2001 when Indian Union budget was presented SENSEX crashed 176 points which forced the government to set up an enquiry into the market reaction.  

The pay order that was given to Parekh by the Bank of India was found to be suspicious. And RBI started investigating on it. Soon it was found that MMCB bank ran out of cash due to which it was bankrupted. Kolkata Stock Exchange was also forced to shut down which resulted in huge loss to the investors.  

Ketan Parekh was immediately arrested and was banned from trading in the stock market for 15 years. Also, he was sentenced to 1 year of imprisonment. It is believed that Ketan still continues trading with the help of some unnamed corporations.  

3.Satyam computers scam 

Satyam computer is one of the biggest corporate governance scams in India Satyam computers services limited started in the year 1998 by the Raju brother, Ramalinga Raju and Rama Raju. In the past, Satyam computers were considered in the top 4 IT companies in India after TCS, Infosys and Wipro. 

The company got listed in the BSE (Bombay stock exchange) in the year 1991. The Satyam computers scam came to light when the company’s chairman resigned by confessing that he had falsified the accounts of the company several times. 

It was a 7000-crore scandal. Ramalinga Raju was declared guilty with 10 other members but the board of the company was not involved in this scam. The brothers did this scam to increase their revenue so that it can result in high profits. 

The Raju brothers, Ramalinga Raju and Rama Raju and his auditors were sentenced to prison and were charge a huge penalty.  

The company was taken over by Tech Mahindra. Following this, new rules and regulations were launched by governments under the companies act. 

Also read : BigBasket- Business Model, Competitors, Funding


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