Top 10 Financial Scandals

Financial scams are blown from facts to figures. They are alarming and throw out a very wrong signal to the investors or the associate companies. The scope of the money involved multiplies diverse in the public sector, with a corresponding drop in accountability.

Insurance Scam – This scam had originated in the period immediately following Independence in 1947. At that time, the insurance sector was not nationalized, and a handful of private companies dominated.  These companies were biased in providing benefits to select industrialists, thereby ignored the interests of the common man. The government responded by nationalizing the insurance sector, and the LIC was formed under a special Act passed by the Parliament. This scam laid the foundation of the nationalization culture in India.

Harshad Mehta Scam– This is perhaps the most well known of all financial scams – probably because it happened in a highly visible period – economic reforms had just been started in 1991. Harshad Mehta was quick to understand the weaknesses of the banking system, and exploited these weaknesses to the hilt. He managed to procure huge amounts of money using the so called Ready Forward deals, and used this money to purchase large amounts of shares at hugely inflated prices. He was also called as the Big Bull of the stock market. Later, the banks got a clue of his shady deals, and demanded their money back.

CR Bhansali Scam – This scam took place in the years 1992-1996, the period immediately following the Harshad Mehta fallout. This makes the scam even all the more daring and surprising. CR Bhansali, the perpetrator of this scam, floated more than 100 companies, such as CRB Mutual Funds and CRB Capital Markets. The primary purpose of these companies was to attract huge funds from the public by promising high rates of interest. This interest was later paid from further borrowings, and so on.  In 1995, the stock market collapsed, and this proved to be the undoing of 
CR Bhansali. He was investigated, and later arrested.

UTI Scam – The UTI scam involved the flagship US-64 scheme of UTI, which was meant to channel the funds of small investors into instruments bearing high returns. The economic liberalization in India with operations of UTI led to a situation where in the Government was forced to announce a huge bailout of about Rs 3,500-4,000 crores in an order to prevent default in payments to the investors. Later, it turned out that the UTI Chairman appointed at this time, Mr. P S Subramanyam, along with a couple of executive directors, acted wrongly to selectively benefit a powerful coterie of brokers and industrialists, while at the same time, jeopardizing the interest of lakhs of small investors.

Home Trade Scam – Around the year 2000, a finance portal emerged on the financial landscape, and gained quick recognition on the back of endorsements by personalities like Hrithik Roshan, Sachin Tendulkar and Shahrukh Khan. The portal, owned by Sanjay Agarwal, claimed to deal in gilts. Soon, RBI got suspicious of activities of some cooperative banks in the gilt market, and a scam was uncovered. It was the brokers and bankers combining to rob people’s money. The total scam size was reported to be around Rs 300 crores, and more than Rs.200 crores were spent on publicity costs alone.

Ketan Parekh Scam– Ketan Parekh, a qualified CA, and a stock broker, identified a number of stocks (popularly called the K-10), and took up huge positions in these. For this purpose, he used a large number of Benami accounts and smaller stock exchanges, such as the Kolkata and Ahmedabad stock exchanges. He borrowed heavily from banks like Global Trust Bank and Madhavpura Mercantile Cooperative Bank. Unfortunately, he was stuck in a bear cartel, and was soon pounded to pulp on the stock exchange. The extent of the scam was estimated to be around Rs 1,500 crores. Our regulatory system never learns from scams.

Abdul Karim Telgi Scam - This scam promised to be the mother of all scams in India, initially quoting a figure of Rs 30,000 crores as the scam size. Later, RBI clarified that this figure was rather exaggerated, and the correct figure was around Rs 200 crores. Again, this scam exposes how the India system works – Mr Abdul Karim Telgi, the scam maker, paid bribes to get access to the security press in Nasik, where stamp papers and currency notes are printed. He later used this knowledge to print fake stamp papers. At the height of the scam, Telgi’s network spanned 14 states, 125 banks and more than 1,000 employees.

DSQ Software Scam – Though this scam was modest in terms of money involved (only Rs 600 crores), and did not affect the general public to a great extent, yet it is notable for how it came into being. The main player in the scam was Mr. Dinesh Dalmia, who was the MD of DSQ Software Ltd. This company issued around 1.3 million shares in 2001, and these shares were allotted to four companies on a preferential basis. NSDL, a stock depository, dematerialized and helped in delivering the shares. Nothing wrong in that, except that the shares were not even listed on any stock exchange!

IPO Scam – A number of key operators, including corporate stock brokers such as Karvy and India bulls, were involved in the IPO scam that spanned the years 2004 – 2005. The modus operandi was simple – the operators would open thousands of fake accounts to purchase shares in IPOs, in the hope of selling later at huge profits. A spate of IPOs issued during this period was heavily oversubscribed due to this scam, sometimes by as much as 40 times. This can happen only if the system is so lowly regulated and supervised.

Satyam Scam– One fine morning in January 2009, Ramalinga Raju, Chairman of Satyam Computer Services, admitted to falsification in the company accounts and various other irregularities, and sent a chill down the collective spine of the Indian financial system. Coming on the back of the global recession, this incident promised to bust the Indian outsourcing industry and the stock market, but for some deft bailout work by the government. The worth of this scam was around Rs 7,000 crores. It was with the help of some expert consultants that the company underwent a changeover to Mahindra Satyam taken over by Tech Mahindra.