"If it's too good to be true, it probably is a fraud."
The Stock Market has become a platform for growing unethical practices. There is an artificial increase in prices before rights are being issued. Some investments are diverted to speculative activities or any personal use. Unofficial trading occurs along with regular stock exchanges. Price rigging is a common evil practice prevailing in the stock markets of India. Out of over 6,400 companies in the country which are listed, most of the trading is restricted to only 200 to 250 actively traded scrips. There is an increased mass of fraud brokers in the financial market.
Harshad Shantilal Mehta, one of the biggest stockbrokers who became infamous for his involvement in the 1992 Indian securities scam is one of the most significant examples of the fraud happening around the country. He was engaged in massive stock manipulation and was involved in a huge scandal of ₹100 billion in the Bombay High Court. He was later convicted by the Supreme Court. He was imprisoned for 9 years until he died in 2001.
Ketan Parekh, a trainee under Harshad Mehta, was the spearhead of the second biggest scam in India. He utilised pay orders to scam Indian banks. He deployed strategies to inflate the prices of ten selected stocks, known as the K-10 stocks. He ensured to involve his investments in these stocks with the 1997-2001 DotCom boom so that a rise in the stock price of these 10 stocks would not come to anyone's attention. He inflated the stock price of HFCL to ₹2,300/share which was initially priced at ₹42/share and Global Teleservices to ₹3,100/share which was previously priced at ₹85/share. He would then keep his inflated stocks with banks as collateral and fetch more loans. At the time, the RBI could give a maximum loan of 15 Crores to companies. Ketan Parekh borrowed 800 crores from the MMCB (Madhavpura Mercantile Co-op Bank) and ₹100 crores from the GTB (Global Trust Bank) without any collateral. He did this by bribing. The promoters of the K-10 companies also paid him to inflate their stock prices. He would then utilise this amount to inflate the stock prices by doing circular trading i.e. trading among select operators only. This would create too much free float in the stock. Retail investors got tempted to invest in these stocks due to the high liquidity rate. But when the DotCom bubble burst in 2001-2002, all the K-10 stocks witnessed a massive downfall in stock prices. The MMCB bank and GTB banks were victims of bankruptcy. He was not capable of selling the stocks nor was he able to raise any new funds. It was a scam of ₹40,000 crores.
Understanding how disasters happen in the stock market is very critical. A good analysis of the investment is necessary before you think of investing your idle money. It's important to know about the return rate and analyse risk factors carefully. Innovators and You assures you to help you out from falling into such scams. We offer you the best quality knowledge on the financial market and stand by you while making an investment decision in the stock market.
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