Stock Market Scams of India
Growth is a double-edged sword. Growth in anything brings in more good and bad for the people involved.
The growth of the internet opened the gates to prosperity for some, but it also became a place for criminals to engage in dark activities. The growth of social media helped us connect with more people, but it also became a reason why people are more depressed in this generation.
Economic growth is no exception to this phenomenon. As the Indian economy climbed the ranks to become the fifth largest by GDP since independence, it also became home to the most notorious financial scams that we have witnessed in the history of mankind.
Indians have lost more than ₹10 lac crores in the past decades to financial scams. Each time a scam surfaces and people pledge to become more aware and vigilant of these to avoid them in the future, a newer and innovative scam strikes.
That doesn’t mean that we should not talk about these scams and how they were perpetrated to at least get better as a whole economy into tackling them in the future.
Here is a list of the 10 biggest financial scams India witnessed in recent history 👇
[1] Coal Allocation Scam: 2012 ➡️ ₹1,86,000 Cr
[2] 2G Spectrum Scam: 2007 ➡️ ₹1,76,000 Cr
[3] Commonwealth Games Scam: 2010 ➡️ ₹70,000 Cr
[4] Ketan Parekh Scam: 2001 ➡️ ₹40,000 Cr
[5] DHFL Scam: 2019 ➡️ ₹34,614 Cr
[6] Telgi Stamp Paper Scam: 2003 ➡️ ₹30,000 Cr
[7] Harshad Mehta Scam: 1992 ➡️ ₹25,000 Cr
[8] ABG Shipyard Scam: 2019 ➡️ ₹22,842 Cr
[9] Granite Scam: 2012 ➡️ ₹16,000 Cr
[10] Satyam Scam: 2009 ➡️ ₹12,320 Cr
[1] Coal Allocation Scam: 2012 ➡️ ₹1,86,000 Cr
The Coal Allocation Scam of 2012 involved the illegal allocation of coal blocks by the Indian government. A coal block refers to a specific area of land containing coal deposits, which the government allocates to private companies for coal mining and extraction purposes.
However, in this case, influential politicians and businessmen colluded to secure coal blocks through corrupt practices, instead of competitive bidding. As a result, both public sector enterprises (PSEs) and private firms paid less than they might have otherwise.
[2] 2G Spectrum Scam: 2007 ➡️ ₹1,76,000 Cr
Similar to the Coal Allocation Scam, politicians and private officials colluded to sell 2G spectrum licenses to advantage specific telecom operators.
Spectrum refers to the radio frequencies used by mobile operators to provide services. These are crucial for doing business, and acquiring them becomes very important.
Then Telecom Minister was accused of selling these 2G spectrum licenses at a very low cost, in return for bribes, which resulted in the loss of ₹1,76,000 Cr in government revenue.
[3] Commonwealth Games Scam: 2010 ➡️ ₹70,000 Cr
As the country prepared to host the prestigious sporting event, allegations of widespread corruption surfaced.
The scam involved work contracts being awarded at higher prices, poor quality assurance and management, and work contracts awarded to ineligible agencies. Moreover, there were alleged corruption charges for procurement and awarding contracts for constructing the game’s infrastructures.
Among the alleged corruption and defrauding of the event’s budget, toilet paper rolls valued at $2 were costed at $80, $2 soap dispensers at $60, $98 mirrors at $220, $11,830 altitude training simulators at $250,190.
[4] Ketan Parekh Scam: 2001 ➡️ ₹40,000 Cr
Ketan Parekh was a stockbroker who was responsible for artificially inflating the price of select stocks – a set of ten stocks colloquially referred to as “K-10” stocks – through circular trading. Later revealed, promoters and industrialists gave Parekh funds to rig their share prices artificially.
He did that by buying and selling stocks between two or more known parties solely to create the appearance of activity or volume in a particular security. In actuality, there is no genuine change in ownership; instead, the same securities are bought and sold repeatedly among the involved parties.
When the truth came to light and markets crashed, large institutional investors, including insurance companies and mutual funds, incurred large-scale losses.
[5] DHFL Scam: 2019 ➡️ ₹34,614 Cr
DHFL was an NBFC that had come to light for its dubious lending practices. They had been accused of giving loans to shell companies, round-tripping that money back to the promoters, and then using that to buy assets.
Any business that engages in lending must comply with certain rules laid down by the RBI. Due diligence should be done before the loans are doled out. But DHFL lent out public money to shell companies that routed money back to their promoters.
This way, promoters could amass huge riches at the company’s cost. When this became public, DHFL started hiding their poor financial health from bad lending practices by engaging in accounting gimmickery to fool everyone.
[6] Telgi Stamp Paper Scam: 2003 ➡️ ₹30,000 Cr
Abdul Karim Telg set up a massive operation to produce and sell counterfeit stamp papers during the late 1990s and early 2000s. These fraudulent stamp papers were used in various financial and property transactions across the country.
Telgi’s sophisticated network involved government officials, printers, and middlemen, letting him operate without coming under the radar for long. But when caught, it was estimated that his actions led to a revenue loss of ₹30,000 Cr to the Indian government.
[7] Harshad Mehta Scam: 1992 ➡️ ₹25,000 Cr
The 1992 scam shook the foundation of India’s financial markets and exposed vulnerabilities in the banking system. It also became a reason why SEBI was recognized as a statutory body to protect investors’ interests.
Harshad Mehta, a stockbroker, rigged up the prices of stocks using money that he fraudulently received from banks in his personal account and then sold them off to innocent investors at higher prices, booking profits for himself and giving bank money to the banks at higher interest rates.
[8] ABG Shipyard Scam: 2019 ➡️ ₹22,842 Cr
The most recent of all scams discussed in this article put the entire maritime industry in a poor light. Once a prominent player in the shipbuilding sector, ABG Shipyard faced allegations of financial irregularities and fraud.
It had borrowed huge amounts of money from large bank consortiums and diverted the funds to “paper companies” and Singapore-based group entities in tax havens. This all came to light when SBI suspected a scam, and E&Y conducted a forensic audit of the financials in 2019.
The promoter of the company was arrested in 2022 by CBI after being found guilty.
[9] Granite Scam: 2012 ➡️ ₹16,000 Cr
The Granite Scam of 2012 surfaced primarily in the southern states of Tamil Nadu, Karnataka, and Andhra Pradesh. It exposed a network of corruption involving key industry players and government officials who colluded to flout regulations and extract granite without proper permits or environmental safeguards.
This scandal was a blatant display of corrupt activities, where bribed officials sidelined the law of the land. Companies like PRP Exports took advantage of this situation to conduct business activities with little regard for regulations or ethical standards.
[10] Satyam Scam: 2009 ➡️ ₹12,320 Cr
It is by far the largest accounting fraud in corporate India history. Satyam Computer Services, once a leading IT company, faced allegations of widespread financial manipulation and falsification of accounts.
The chairman Byrraju Ramalinga Raju had been siphoning off money from the books of the company’s accounts through various accounting malpractices and then supporting it with fictitious assets and income with no actual cash to show in the bank. Here, the majority shareholders, like Raju, were stealing from minority shareholders.
The scandal was brought to light in 2009 when the chairman confessed that the company’s accounts had been falsified.
Conclusion
By learning from these past mistakes, we aspire, as citizens and investors, to steer clear of such instances in the future. While expecting no recurrence of such scams is unrealistic, we can remain vigilant and prepared to mitigate their impact on our finances.
