Top 10 Investment Scams

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Indian financial industry has always been successfully able to trace every prospect offered by the India's fiscal policy both in terms of alteration and expansion. In spite of all the endeavors implemented to develop the financial market, it still remains fatally faulted due to lack of three major key elements namely inadequate management, stringent accountability, and proper punishment.

As a result, the capital market of India has remained one-dimensional and has staggered from one investment scandal to another. A straightforward listing of the top 10 investment scams narrates the account of why Indian investors were left annoyed by the scamsters.

A brief about Top 10 Investment Scams in India

  1. The Securities Scam
    The capital market witnessed its foremost investment scandal in the form of securities scandal in the year 1992. It revealed the utter anarchy and lack of administration in the prevailing fiscal market. The money market at that time permitted funds to be relocated with impunity from financial institution and corporates into equity and consequently witnessed crores of bank's capital to transfer into brokers' account. This illegal market practice was later asserted as "legal and acknowledged".

    In an attempt to punish the tricksters, a special court was initiated and scrutinized around 70 cases registered by CBI. Surprisingly, not even a single trickster was found guilty by the dreadfully sluggish judicial system. As a matter of fact, the scamsters made frequent attempts to re-enter the market with same set of traps and resulted in losses to investors.

  2. The IPO scam
    Soon after the entry of international organizational investors, the Control over Capital Issues was banned as the market saw heavy bull trend resulting in the revitalization of the secondary market from the previous scandals. The ban of Control over Capital Issues unlocked the prospects of massive scandal in Initial Public Offerings (IPO). The scam was executed in two parts; the first part was carried out by the firms that increased their market costs to incur profits in order to sponsor lucrative projects. The second part saw the unison of small time merchants, CAs, investment bankers and traders to hoist new firms and heave public capitals.

    The IPO scam prevailed for three long years from 1993-1996 and finally saw its downfall when the costs of the registered firm started deteriorating.

  3. Favored share scam
    The scandal was an outcome of the extensive cost fixing on the derivative market. Besides increasing fresh capital, advocates of Indian firms promptly coordinated general body authorizations to transfer shares to themselves on a privileged basis and at a considerable reduction to the market, thinking that the share prices would never see the ground. Conglomerates started this trend and accrued profits of nearly 55o crores until Securities and Exchange Board of India (SEBI) formulated strict guidelines to abandon the market practice.

  4. CRB's cardboard scam
    The ` 1000 crore finacial multinational named as Chain Roop Bhansali (CRB) was the only biggest firm and most impudent of all to benefit and disappear in the loosened market ambiance of mid-1990s. The services offered by his firm entailed FC collection, mutual fund, banking, etc. The clearances obtained by the firm for the trading of these services required sufficient inspection by SEBI and the RBI and the fact that they managed to qualify shows the supervisory weariness of the regulators. Facilitated by the clearances and profitable credit ranking, CRB accrued greater profits based on high value financing. The CRB collapse not only affected the investors but also the other finance firms.

  5. Plantation firms' scam
    Since few firms in mid-90s were subject to no guidelines, the plantation companies during that time also got away with profit protrusions. The plantation firms projected themselves as a part of IPO and assured massive returns. The investors were lured and the companies accrued profits from fake campaigns of around ` 8000 crores plus.

  6. Mutual Funds scam
    After several mutual fund scams, the UTI bailout reflected the lack of proper guidelines in the Indian capital market. Since UTI was initiated under its own regulations, it was the tax payers who suffered the loss of ` 4800 crore in the process. After three years, the company was back purchasing Ketan Parekh's controlled scrips and incurring massive losses in the process. The evidence of the private mutual funds performance has also been inconsistent after hitting the downfall in 1999 and 2000. It took a considerable amount of time for capital market to win back the trust of mutual fund investors.

  7. The 1998 scam
    The scamster of 1992 scam, Harshad Mehta came back with a bag of tricks again in 1998. This time he lured investors through a website by trading stock tips. His unremitting manipulation of several shares resulted in the much expected collapse of Bombay Stock Exchange.

  8. Home Trade scam
    Initiated in 2000, Home trade invested rs 24 crore in promotional campaigns to attract investors. The scam affected 8 co-operative banks that lost ` 82 Crore in EPF scheme. The Chief Executive of Hometrade, Mr. Sanjay Aggarwal was convicted by Nagpur Police later.

  9. DSQ Software Scam
    In the year 2000 and 2001, the Managing Director of DSQ Software, Mr. Dinesh Dalmia, was held responsible for ambiguous mergers and prejudiced allocation of the amount of upto ` 595 Crores. He was later convicted in the year 2006.

  10. Satyam Scam
    After manipulating the firm's documents for several financial years, the former Chairman and Chief Executive of Satyam Computers, Mr.Ramalinga Raju, was arrested for committing scam, following unethical practice and forgery. He showed greater profits and committed fraud of ` 700 crores.

(Last Updated on 11th May 2011)

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