PROJECT REPORT ON

The effect of stock market scams on the share prices of the

companies

UNDER THE GUIDANCE OF

Dr. Swati Narula
VSBS, VIPS

SUBMITTED BY:
LAKSH MANUJA
ENROLLEMENT NO. - 02217788822

Vivekananda School of Business Studies

Vivekananda Institute of Professional Studies
AU Block (Outer Ring Road) Pitampura Delhi -
110034

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Table of Contents
 Student Under Taking ………………....…..……...……………………...3
 Certificate……………………..………..……….......................................4
 Acknowledgement…….……………………………………………….....5
 Chapter 1: Introduction……………………………………………….….6
o Purpose of the Study………………………………………….......7
o Research Objective of the Study…………………………….……7
o Rational for choosing the topic…………………………….……..8
 Chapter 2: Review of literature………………………………………….9
 Chapter 3: About the
Topic……………....................................................11
o What are stock
markets……………………………………….......12
o Major scams in the stock Market…………….………………..…
15
 Chapter 4 : Research Methodology….
…………………………………...25
 Chapter 5 : Findings and analysis of data………………………………..27
 Chapter 6 :
Suggestions………………………………………..................37
o Recommendations for investors……..……………………….......38
o Significance of Study……………………………………………39
 Chapter 7 : Conclusions………………....................................................41
o Conclusion………………………………………………………..42
o Bibliography……………………………………………………..43
 Annexure…………………………………………….…………………..44

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Student Undertaking

I LAKSH MANUJA(02217788822), from BCOM(HONS.)

Semester-4 of Vivekananda Institute of Professional Studies,
Delhi herby declares that the final project report entitled The
effect of stock market scams on the share prices of companies
is an original work and the same has not been submitted to any
other institute for the award of any other degree and the
instructions as provided by the faculty were duly incorporated.

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Date:

Signature of the student: Laksh Manuja

CERTIFICATION

This is Certified that the final project report submitted by

Laksh Manuja Enrolment No 02217788822 has been

completed under my guidance and is satisfactory.

Date:

Signature of Guide:

Name of Guide: Dr. Swati Narula

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 Designation: Faculty VIPS

ACKNOWLEDGEMENT

The present work is an effort to throw some light on “The effect

various stock market scams on the Share market”
The work would not have been possible to come to the
recent shape without the able guidance, supervision and
help to me by number of people. With deep sense of
gratitude, I acknowledged the encouragement and guidance
received by my Project Guide, Dr. Swati Narula. I convey my
heartfelt affection to all those people who helped and
supported me during the course, for completion of my
Project Report.

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 Chapter-1
Introduction

6|Page
Purpose of study:
 To study various scams that shook the stock markets
 To study its short term effect on the stock market
 To study its effect on the Indian economy
 To study its effect on the stock indices like nifty and
sensex
 To study it’s effect on retail investors
Research objectives of the study:
 To study the impact of these scams on share prices
 To study its impact on sensex as well as nifty 50
 To bring into light the effect of such scams

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 Rationale for choosing the
topic
I wanted to learn about the various major scams that
have taken place in the India and I also wanted to
understand its aftermath and effect on the share prices.
Similarly I also wanted to understand how these scams
effect a common retail investors by understanding its
effect on various indices like SENSEX and NIFTY 50.

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Chapter 2:
Literature
Review

9|Page
Review of literature-
R. Chakrabarti, S. Sarkar (2009):The recent corporate governance scandals at
the fourth largest software firm in India, Satyam Computers Limited, provide
two clean and major corporate governance events, with effects on firms across
the board in India (and possibly other emerging market countries). We analyze
the cross-sectional variation in the stock price reactions to these two corporate
governance shocks for Indian companies. We relate the firm-specific abnormal
returns on these two dates to different measures of corporate governance to find
out the market perception of the validity of these measures. We show that with
regard to board effectiveness, i) Board independence per se does not matter; but
ii) The characteristics of the independent directors matter: companies with more
independent directors do better and those with more entrenched board (proxied
by mean tenure of independent directors) fare worse; iii) institutional holdings
have a salutary effect, but only for foreign institutions; iv) board size had a
quadratic relationship with board effectiveness and v) perhaps surprisingly;
there is no evidence of a discount for company belonging to business groups.
These findings help us identify what variables among those identified by prior
research are actually taken into account by investors in an emerging market to
assess the corporate governance levels of companies and to what extent they
affect valuation.
Fathimathabasum(2009) had analyzed that the security scams and financial
scandals have lead to the manipulation of large amount of money, bloating
stock markets and sensex. Even the financial markets having regulatory
authority and empowered legal sections have failed in providing good corporate
governance. Due to that many investors lose their confidence on corporate
governance and lose their faith on the investors and the companies and banks as
well as in CRB case people lost their fixed deposits and mutual funds also and
incurred looses. People like Harshad Mehta use so many mediums such as
website and writing columns in several newspapers giving tips on stocks. The
result was the people trust them and do accordingly this result to the loss only.
Market bullers also plays a great role in that due to their forces ,the prices of the
selective shares constantly increased due to rigging. The investors who bought
the share at higher prices thought that the market prices were genuine. On the
whole it is a game of few people who do and then the investors suffers a lot as it
is necessary to pass certain rules and follow the corporate governance strictly.
Padmavathi C, Sunitha T, Sunitha S, (2008) Had analyzed that forensic
accounting was the application of specialized knowledge and specific skills to

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stumble upon the evidence of economic transactions. The ever increasing
corrupt business practices, corporate frauds, the much talked about financial
statement frauds at Enron and WorldCom and other crimes had brought forensic
accounting‘ to limelight. Rapid advances in technology sector transformed the
nature of frauds. Countering sector specific frauds require an overarching
strategy distinctive to certain sectors. It has been recognized across all sectors
that internal control reviews help prevent frauds. Specific internal control
procedures designed with focus on frauds and managements‘ stance in
combating frauds partly solve the problem. A forensic accountant‘s
investigative services extend to cover a wide spectrum – from accounting
violations, exposing tax evasions, financial misappropriations, employee fraud
investigations, undertaking criminal investigations, resolving partnership
disputes, marital dissolutions, bankruptcy, investigation into breach of fiduciary
duty, capital market frauds, undertaking business valuations, investigation of
family disputes, wrongful termination and countering terrorism. In, the second
study in a series of volumes on Forensic Accounting and Financial Frauds,
attempts to present a comprehensive literature on some specific white-collar
thefts pertaining to specific sectors
ChoudhariArun (2006) had analysed that corporate world has experienced
several disasters. In most of the cases, large companies were found tainted by
scams (Enron, WorldCom, Parmalat, and Vivendi to name a few). As a result of
these scams, corporate governance emerged as a burning issue in corporate
circles. A number of committees were formed in different parts of the globe and
most of these committees stressed the need of internal control in all domains of
finance. Risk-based Internal Audit, a revolutionary new concept in the realm of
traditional audit, gained wider acceptance. This article outlines the need for
Risk-based Internal Audit to provide an evolutionary sketch of this method in
the backdrop of corporate governance. After studying the review of literature
the need of the study is to know as to the effects on the share price of the
company who has undergone the Corporate Fraud. The scope of the study
would be limited to a certain set of companies and the data of which would be
collected from the website of NSE & BSE. The study mainly focuses only on
those companies have been under the Corporate Fraud. An attempt has been
made to study the impact of Financial scams on the share price of the company.

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 Chapter-3
About the topic

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Stock Market
The stock market is a financial market where individuals and institutions can
buy and sell shares of publicly traded companies. It provides a platform for
companies to raise capital by selling ownership stakes, known as stocks or
shares, to investors.
Here's a basic description of how the stock market works:
• Companies Go Public: When a company wants to raise funds for expansion
or other purposes, it can decide to go public. This process involves offering a
portion of the company's ownership through an Initial Public Offering (IPO).
The company determines the price and number of shares it wants to offer to
the public.
• Stock Exchanges: Once the company's shares are available for public trading,
they are listed on stock exchanges, which are platforms where buyers and
sellers can come together to trade stocks. Some well-known stock exchanges
include the New York Stock Exchange (NYSE) and the Nasdaq.
• Buyers and Sellers: Investors, such as individuals, institutional investors, and
traders, can buy and sell shares of publicly traded companies on the stock
exchange. Buyers place bids, indicating the maximum price they are willing to
pay for a particular stock, while sellers set asking prices, indicating the
minimum price they are willing to accept.
• Stock Price Determination: The stock market operates based on the
principles of supply and demand. The price of a stock is determined by the
interaction between buyers and sellers. If there are more buyers than sellers, the
stock's price tends to rise. Conversely, if there are more sellers than buyers, the
price tends to fall.
• Stock Indices: Stock market indices, such as the S&P 500 or the Dow Jones
Industrial Average, are created to track the performance of a specific group of
stocks. They provide a snapshot of the overall market or specific sectors. These
indices help investors assess the overall health and direction of the stock
market.
• Investment Strategies: Investors use various strategies when participating in
the stock market. Some aim for long-term growth and invest in well-established

13 | P a g e
companies with strong fundamentals. Others engage in short-term trading,
trying to profit from price fluctuations within shorter time frames.
• Risks and Rewards: Investing in the stock market comes with risks. Stock
prices can be volatile, and they can fluctuate based on numerous factors, such as
economic conditions, company performance, geopolitical events, and investor
sentiment.

Stock Exchange
A stock exchange is a regulated marketplace where buyers and sellers come
together to trade stocks, bonds, and other securities. It provides a platform for
companies to list their shares and for investors to buy and sell those shares.
Here are some key aspects and functions of a stock exchange:
• Listing of Securities: Stock exchanges provide a venue for companies to list
their securities for public trading. The process involves meeting specific
requirements, such as financial reporting standards, corporate governance
regulations, and disclosure obligations. Once listed, companies' shares become
available for trading on the exchange.
• Trading Platform: Stock exchanges serve as a centralized marketplace where
buyers and sellers can execute transactions. Investors can place orders to buy or
sell securities through brokerage firms or directly through electronic trading
platforms provided by the exchange. The exchange ensures transparency and
fairness in the trading process by facilitating the matching of buy and sell
orders.
• Market Regulation: Stock exchanges are regulated entities that enforce rules
and regulations to maintain market integrity and protect investors. They
establish listing requirements, monitor trading activities, and enforce
compliance with securities laws. Regulators oversee the exchanges to ensure
fair and orderly trading, detect and prevent market manipulation, and safeguard
investors' interests.
• Price Discovery: Stock exchanges play a crucial role in price discovery.
Through the continuous buying and selling of securities, the exchange facilitates
the determination of market prices. The interaction of supply and demand
influences the stock prices, and this price discovery mechanism reflects market
participants' assessment of a company's value and future prospects.
• Market Indices: Stock exchanges often create and maintain market indices,
such as the S&P 500, NIFTY 50, or SENSEX. These indices represent a basket
of stocks that provide a benchmark for overall market performance. They serve
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as indicators of market trends, sector performance, and investor sentiment.
Market indices are widely followed by investors, analysts, and the media to
assess the health and direction of the stock market.
• Market Surveillance: Stock exchanges monitor trading activities to detect
any irregularities or manipulative practices. They employ sophisticated
surveillance systems to identify potential market abuses, such as insider trading,
front-running, or fraudulent activities. Through surveillance, exchanges aim to
maintain a fair and transparent market environment.
• Access to Capital: Stock exchanges enable companies to access capital by
issuing shares to investors. By listing their securities on a stock exchange,
companies can attract a broader base of investors and raise funds for business
expansion, research and development, debt repayment, or other corporate
purposes. The stock market provides a mechanism for companies to tap into
public investment capital.
• Investor Protection: Stock exchanges and regulatory authorities have
investor protection as a key objective. They enforce rules and regulations to
ensure fair and transparent trading, prevent market abuses, and provide avenues
for dispute resolution. Through disclosure requirements and periodic reporting,
exchanges promote transparency, enabling investors to make informed
investment decisions.
• Secondary Market Trading: Stock exchanges provide a secondary market
for investors to trade previously issued securities. This liquidity allows investors
to buy and sell shares at market-determined prices, providing an opportunity to
exit or enter investments. The secondary market also facilitates price continuity
and enhances market efficiency.
Some well-known stock exchanges around the world include the New York
Stock Exchange (NYSE), Nasdaq, London Stock Exchange (LSE), Tokyo Stock
Exchange (TSE), and Shanghai Stock Exchange (SSE). Each exchange has its
own listing requirements, trading hours, and regulations, but they all serve the
common purpose of facilitating the buying and selling of securities in a
regulated and transparent manner.

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Stock Market Scams:
1.Ketan Parekh Scam:
Ketan Parekh was the architect of the 2001 stock market scam. Before the scam
surfaced, he was popularly known as the “One Man Army” or “Pentafour Bull”
of the Indian Stock market as the stocks he invested in used to shoot up and
people used to blindly follow his calls. During the period of the scam, Ketan
Parekh even generated a 200% annual return on some of the stocks he
manipulated. Ketan Parekh is a Chartered Accountant by qualification and he
started his professional career by handling his family brokerage firm namely
NH Securities. Later he followed the footsteps of his mentor Harshad Mehta
and hence joined him. Parekh learned the tricks and trades of the stock market
from his mentor Harshad Mehta and was also a promoter in one of Harshad
Mehta and Ashwin Mehta companies.
Ketan Parekh scam amount - According to the reports by SFIO (Serious
Fraud Investigation Officer), Ketan Parekh scam amount was worth around
40,000 crores.

How Ketan Parekh executed the scam?

Parekh’s methods of raising funds to pump up the stocks were also a bit
different as he used both public funds and capital from influential corporates to
shoot their prices. Parekh was on the board of Global Trust Bank and MMCB
and he used clout in the banks to receive huge loans against his shares. In those
days according to RBI guidelines, banks could give only up to 15 crores as
16 | P a g e
loans to a stockbroker but Parekh bribed officials of their bank to receive loans
of around 800 crores and 100 crores from MMCB and GTB respectively. He
also defrauded MMCB to issue a payment order worth Rs.137 crore to one of
his companies. A pay is a financial instrument issued by a bank that orders
another bank to pay a specified amount to the third party on the behalf of the
customer of the issuing bank. But in reality, he never deposited such amount in
MMCB. Parekh also took huge sums of money from promoters of companies to
shoot up prices of their stock as it will help increase the net worth of those
traders whose money is invested in the company and will also help Parekh book
profits after squaring his position after shooting up the prices.
How Ketan Parekh used Circular Trading?
Ketan Parekh realized that institutional investors only invest in stocks that have
high trading volumes and have media attention. He used to the strategy of
circular trading and his huge funds which he accumulated from banks and
corporates. Circular trading is a strategy where multiple brokers would buy and
sell specific shares in similar quantities which matches the trade thus, forming a
cycle. By using this strategy, Parekh managed to show high liquidity in the
stocks he wanted to manipulate. At the same time, he primarily targeted IT
stocks during the IT boom which helped it to gain media attention. Thus, by
using the above strategies, Parekh manipulated the stocks and enticed
institutional investors in invest in K-10 stocks. The Ketan Parekh scam started
uncovering when Bank of Baroda’s Mumbai branch accused Ketan Parekh that
he defrauded the bank to the tune of 137 crore and when Sucheta Dalal of the
Times of India published a report on the scam then it became the talk of the
town.
How Ketan Parekh Scam Expose after Budget 2001?
After the 2001 budget, the Sensex crashed by 176 points which propelled the
NDA government to conduct an investigation into the market crash and Ketan
Parekh being a prominent name in the stock market, his transactions came under
scrutiny. Upon investigation, RBI found Parekh’s pay orders to be suspicious
and when all of this was happening a payment crisis occurred in the Calcutta
Stock Exchange, when the bear cartel started dumping K-10 stocks that resulted
in other brokers also dumping K-10 stocks who were holding it in his name. All
of this thus resulted in Sensex tumbling 146 points further.
Repercussions of the Ketan Parekh Scam expose
The whole unveiling of the scam resulted in the massive erosion of Ketan
Parekh’s wealth leading him and his followers to bankruptcy. Ketan Parekh was
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arrested on 31st March 2001 for defrauding the Bank of India of 137 crores. He
was also found guilty of insider trading and thus was banned from trading until
2017. In the year 2009, SEBI found him to be using a front company to trade in
the stock market and carrying out illegal activities which resulted in nearly 26
entities getting banned from trading. A fast-track court sentenced three-year
imprisonment in 2018 but he was later given bail by the Bombay High court.

2.Satyam Computers:
About Satyam computers
Satyam Computer Services Ltd was founded in 1987 in Hyderabad by brothers,
Rama Raju and Ramalinga Raju (henceforth Raju). The name in the ancient
Indian language Sanskrit meant ‘Truth’. The firm began with 20 employees
offering IT and BPO services across various sectors. The initial success of the
company soon led to it getting listed and opting for an IPO in the BSE in 1991.
Post this the company soon got its first Fortune 500 client- Deere and Co. This
further allowed the business to grow rapidly into becoming one of the top
players in the market. Satyam soon became the fourth largest IT software
exporter in the industry after TCS, Wipro, and Infosys. At the peak of its
success, Satyam employed more than 50,000 employees and operated in 60+
countries. Satyam was now seen as the prime example of an Indian Success
story. Its financials too were perfect. The firm was worth $1billion in 2003.
Satyam soon went on to cross the $2billion mark in 2008. During this period the
company had a CAGR of 40%, operating profits averaging 21% with a 300%
increase in its stock price. Satyam was now an example to other companies as
well. It was showered with accolades from MZ Consult for being a ‘leader in
Indian Corporate Governance and Accountability, the ‘Golden Peacock Award’
for Corporate Accountability in 2008. Mr Raju too was revered in the industry
for his business acumen and was awarded the Ernest and Young Entrepreneur of
the Year Award in 2008. Late in 2008, the board of Satyam decided to takeover
Maytas a real estate company owned by Mr Raju. This did not sit well with the
shareholders which led to the decision being reversed in 12 hours, impacting the
stock price. On December 23rd the World Bank barred Satyam from doing
business with any of the banks’ direct contacts for a period of 8 years. This was
one of the most severe penalties imposed by the World Bank against an Indian
outsourcing company. The World Bank had alleged that Satyam had failed to
maintain documentation to support fees charged to its subcontractors and the
company also provided improper benefits to the banks’ staff.

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How was the Satyam Computers scam executed-
In order to understand the scam, we would have to go back to 1999. Mr Raju
had begun inflating the quarterly profits in order to meet the analyst
expectations. For eg the results announced on October 17, 2009, overstated
quarterly revenues by 75% and profits by 97%. Raju had done this along with
the company’s global head for internal audit. Mr Raju used his personal
computer to create a number of bank statements in order to inflate the balance
sheet with cash that simply did not exist. The company’s global head for
internal audit created fake customer identities and fake invoices in order to
inflate the revenue. This, in turn, would allow the company easy access to loans
and the impression of its success led to an increase in the share price. Also, the
cash that the company had raised from the markets in the US never even made it
to the balance sheets. But this was not sufficient for Raju, he went on to create
records for fake employees and would withdraw salaries on their behalf. The
increased share price drove Raju to get rid of as many shares as possible and
maintain just enough to be a part of the company. This allowed Raju to make
profits from their sales at high prices. He also withdrew $3 million every month
as salaries on behalf of employees that did not exist.
Although Raju had set up a great IT company, he was also interested in the real
estate business. The real estate business in the early 2000s was booming in
Hyderabad. It was also rumoured that Raju knew the plan(route) for a metro that
was to be built in Hyderabad. The foundation of the metro plans was laid in the
year 2003. Raju soon diverted all the money into real estate with hopes to make
a good profit once the metro was functional. He also set up a real estate
company called Maytas. But unfortunately, just like every other sector the real
estate sector too was hit badly during the recession of 2008. By then almost a
decade of manipulation of the financial statements had led to the hugely
overstated assets and underreported liabilities. Nearly $1.04billion in bank
loans and cash that the books showed was nonexistent. The gap was simply too
big to fill! By now whistleblowing attempts were also starting to arise.
Company director Krishna Palepu received anonymous emails from the alias
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Joseph Abraham. The mail exposed the fraud. Palepu forwarded it to another
director and to S. Gopalkrishnan a partner at PwC – their auditor.
Gopalkrishnan assured Palepu that there were no truths in the mail and a
presentation would be held before the audit committee in order to assure him on
29th December. The date was later revised to 10th January 2009. Despite this
Raju had a last resort. The plan included a takeover of Maytas by Satyam which
would bridge the gap that had accumulated over the years. The new financials
would justify that the cash had been used to purchase Maytas. But this plan was
foiled after shareholder opposition. This forced Raju to put himself at the mercy
of the law.

3.Sahara Scam –
The Sahara Group, a conglomerate with interests in various sectors including
real estate, financial services, media, and hospitality, was embroiled in one of
India's biggest financial scandals. The scandal primarily revolved around
Sahara's unlisted companies, particularly Sahara India Real Estate Corporation
Ltd. (SIRECL) and Sahara Housing Investment Corporation Ltd. (SHICL), and
their issuance of Optionally Fully Convertible Debentures (OFCDs) to millions
of investors.

Here are some key facts and figures related to the Sahara scam:
1. Scale of Fundraising: Between 2008 and 2011, Sahara Group raised an
estimated Rs. 24,000 to 40,000 crore (approximately $3.4 to $5.7 billion USD)
through the issuance of OFCDs to around 2.21 to 3 crore investors. These
OFCDs were issued by SIRECL and SHICL, claiming to offer high returns.
2. Unregistered Securities: The Securities and Exchange Board of India (SEBI)
contended that the OFCDs issued by Sahara were unregistered securities,

20 | P a g e
violating securities laws in India. According to SEBI, Sahara did not have the
necessary regulatory approvals for issuing these securities to the public.
3. Regulatory Battle: SEBI initiated an investigation into Sahara's OFCD
issuance and ordered the group to refund the money collected to investors with
interest. However, Sahara challenged SEBI's jurisdiction in this matter, leading
to a protracted legal battle that lasted for several years.
4. Supreme Court Intervention: The case eventually reached the Supreme Court
of India. In August 2012, the Supreme Court ruled against Sahara, upholding
SEBI's jurisdiction and ordering Sahara to refund the money raised through
OFCDs to investors. The court also imposed penalties on Sahara for non-
compliance.
5. Refund Process: Sahara began the process of refunding investors' money,
claiming to have repaid a significant portion of the dues directly to investors.
However, SEBI raised concerns about the authenticity of the refund process and
the actual number of investors refunded.
6. Contempt Proceedings: In 2014, the Supreme Court initiated contempt
proceedings against Sahara chairman Subrata Roy and other directors for non-
compliance with its orders. Subrata Roy was eventually arrested and spent over
two years in custody before being released on parole in 2016.
7. Ongoing Legal Battles: Legal proceedings related to the Sahara scam
continue, with Sahara and SEBI engaged in litigation over various aspects,
including the quantum of refunds, interest payments, and compliance with court
orders.
The Sahara scam remains one of the most high-profile financial scandals in
India's history, highlighting issues related to regulatory oversight, investor
protection, and corporate governance in the country.

4.Saradha Chit fund-

The SARADHA Group was established in the year 2006. The Saradha Group
had its base in West Bengal and was established by the mastermind Mr. Sudipto
Sen, the chairman of Sarada Group of Companies. Saradha Group was named
after Sarada Devi, the wife of spiritual Ramakrishna Paramahamsa of West
Bengal. Ramakrishna Paramahamsa and Sarada Devi were blindly followed and
believed by people as they were into spirituality. Now Mr. Sudipto Sen used her
name for his company to gain confidence among people and develop faith of the
investors in his schemes. The Saradha Group promised investors huge returns
for their invested amount.
21 | P a g e
How was the scam executed
SEBI was persistently chasing SARADHA GROUP for its activities since 2010.
Since SEBI’s actions forced Sudipto Sen to change his methods to raise funds,
SEBI warned the West Bengal Government about the SARADHA GROUP Chit
Fund Activities in the year 2011. Since public warning were being raised by the
MPS of West Bengal about this CIS activity , the CBI probed in. The warnings
were issued to the group by MPs Somendra Nath Mitra and Abu Hasem Khan
Choudhary and TMC leader Sadhan Pande. The RBI also asked West Bengal
government on 7th December 2012, to initiate action against the companies that
were indulging in the financial malpractice.
SARADHA GROUP fortune started to shatter towards the end of 2012 when
complaints started piling for payment defaults. In the year 2013 as Sudipto Sen
ran out of cash and ideas to cheat people , he started facing the downfall and
collapse of his organisation. Sudipto failed to calm his investors and their
allegations for defaulting their payments. Sudipto wrote a letter on April 6th,
2013 and mentioned all details about the scam and the amount of the scam was
worth over 10,000 crore. After writing this letter Sen went absconding. On 22nd
April, Mamta Banerjee announced four member judiciary inquiry commission
to probe in to the scam and also set up a relief fund for the investors.

5.NSEL Scam-
NSEL (National Spot Exchange Limited) was conceptualized in the year 2004,
pursuant to the then Prime Minister’s vision to create a single market across the
country for both manufactured and agricultural produce. There was a dire need
to set up a national-level, integrated market for agricultural products, to reap the
benefit of a spot market. NSEL was set up as a company incorporated under the
Companies Act, 1956 on 18 May 2005 with its registered office in the State of
Maharashtra. NSEL was incorporated by MCX and the nominees of FTIL. The
shareholding of MCX and nominees were transferred and consolidated later in
22 | P a g e
2005 with FTIL. National Spot Exchange Limited (NSEL), commenced live
trading on October 15, 2008, and was the first commodity spot exchange of the
country. In order to boost volume, the three exchanges NSEL, NSPOT, and
National AFMC were allowed to conduct forward trading in one-day contracts.
The NSEL became the country’s first ever electronic commodity exchange for
‘spot delivery’ of contracts, including agricultural products. The exchange is
blamed to take as long as 25 to 35 days to settle some contracts. The permitted
time period to do so was up to 11 days. Against the regulations, short-selling,
too, was allowed in many cases. The then regulator Forward Market
Commission (FMC), then intervened and asked NSEL to wind down existing
contracts. This ended in payment default. The crisis came to light when the
physical commodities were short of the record. Warehouse Receipts were not
backed by any physical commodity. When investors claimed commodities
worth their money, the borrowers could not provide them, as goods were way
short in warehouses. This is how the most controversial scam of the
commodities market was born. The scam first seemed like a fraud conducted by
the promoters and key employees. However as the investigation paced, large
brokers and financial players came under the radar. They were allegedly
involved in deliberately introducing their clients to this trading circle. The
brokers failed in their duty by marketing fake schemes and lure the investors
into trading in the commodity segment. In the majority of the cases, they are
allegedly found to have traded on behalf of the ignorant investors. The
investigations continue since then. A number of brokers, defaulters, investors
and key decision makers are under the radar.

6.PACL Scam-
The name Nirmal Singh Bhangu is not known to millions of Indians, but
thousands of families can never forget this person because, this man caused
them huge financial injuries. Actually, Nirmal Singh Bhangu was the owner of
PACL (Pearls Agro Company Ltd). At one time this person had collected

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around Rs 50,000 crore from people in Delhi-NCR. The people who were
giving money were looking at it like an FD. Bhangu used to show this money as
advance to buy land. This sequence continued for a long time but every wrong
thing has its time and this also happened. But its loss was caused to those
innocent people who had given money to it without any information. It is
believed that Bhangu earlier used to sell milk. After this, he opened a real estate
company. This company used to buy land across the country by taking money
from people. When the rates of these lands increased, it would sell them and
return the money to the people with 12.5 percent interest. SEBI raised questions
on why you are working like an investment firm despite being a real estate
company. Bhangu's company PACL went to court regarding this matter. The
Company was registered in 1996. PACL purchased land and other properties for
farming for thousands of crores of rupees in foreign countries and near big cities
of the country like Mumbai, Delhi, Vadodara, Pune, Mohali, Indore etc. and
then carried out its other work. This case continued in the court for 8 years.
During this period, PACL became 100 times larger in size. Rs 49,100 crore had
been collected from about 6 crore people. PACL purchased 1.83 lakh acres of
land across the country. The size of this land is so big that it can accommodate 4
Noida cities. In 2014, the Supreme Court ruled against PACL. In one fell
swoop, investors lost their money. PACL had about 30 lakh agents through
whom this work was done. If the money could not be paid with interest, the
company would offer land anywhere in the country. Australian Cricketer Brett
Lee was even used for advertisement. However, the investors of the company
which once made people rich are today yearning for their hard-earned money.
After uncovering the layers of this scam, the total amount turned out to be Rs
60,000 crore and it is still growing. The first fight between the PAC and SEBI
took place in 1998 but in 2003 they got an order from Rajasthan High Court.
This increased the faith of the investors in the Company and more investment
came in the company. In 2014, the Supreme Court appointed both SEBI and
CBI and ordered an investigation once again. This time, CBI along with SEBI,
after investigation, filed a case against PACL and filed an application to return
Rs 46 thousand crores back to those who invested in PACL

7.NSE Colocation Scam-

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Meaning of Co-location:
Co-location is a data centre facility where third parties can lease space for
servers and other computer hardware. They provide infrastructure like power
supply, bandwidth and cooling for setting up servers and storage of data.
Customers usually rent out space by rack, cabinet, cage or room.
About the NSE co-location case:
The NSE introduced co-location facilities in 2009 and offered traders/brokers
the ability to place their servers within NSE’s data centre for a fee. By being in
close proximity to the stock exchange servers, traders/brokers would have faster
access to the price feed and the execution of trades, due to the low latency
connectivity. In January 2015, a whistle-blower wrote a complaint to SEBI,
alleging that some brokers who leased space at the NSE co-location facility,
were able to log into the NSE systems with better hardware specifications while
engaging in algorithmic trading. This allowed them unfair access from the
period 2012-2014, as the hardware specifications gave them a split-second
advantage in accessing the price feed. A minuscule difference in time can lead
to huge gains for a trader. At that time NSE used to disseminate information
through unicast, which is a single, direct request sent from one host to another,
with only those hosts interacting over the route. At least 15 brokers were
identified by SEBI for having preferential access.

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Chapter 4:
Research
Methodology

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Research Methodolodgy
The research design used for this study is of secondary data. The secondary
data has been collected from various websites such as NSE, books, journals,
newspapers & magazines etc. The date of financial scam has been collected
from NSE.
Research Design: Determine the research objectives and questions that will
guide your secondary data analysis. Clarify what specific information you need
and how you will use the secondary data to address your research goals.
Identifying Relevant Data Sources: Identify potential sources of secondary data
that are relevant to your research topic. These may include academic journals,
government publications, industry reports, databases, books, and reputable
websites.
Data Collection: Access and gather the secondary data from the identified
sources. Ensure that the data is reliable, up-to-date, and relevant to your
research objectives. Document the sources of the data for proper referencing.
Data Evaluation: Assess the quality of the secondary data. Consider factors such
as credibility, accuracy, relevance, timeliness, and completeness. Evaluate the
methodology used to collect the data and any potential biases.
Data Organization and Management: Organize the collected data in a systematic
manner for ease of analysis. Use spreadsheets, databases, or other tools to
manage and categorize the data effectively.
Data Analysis: Analyze the secondary data using appropriate statistical or
qualitative methods, depending on the nature of the data and research
objectives. Identify patterns, trends, relationships, and insights within the data.
Interpretation and Conclusion: Interpret the findings from the data analysis in
relation to the research objectives. Draw conclusions based on the insights
gained from the secondary data analysis. Discuss the implications of the
findings and any limitations of the secondary data.

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 Chapter 5:
Findings and
analysis of data

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1.Ketan Parekh scam-
K10 stocks ( stocks manipulated by this scam)
1.Pentamedia Graphics-

Analysis-
From the chart we can infer that as soon as the news of the scam broke the stock
price decreased heavily. It went from ₹1600 to under ₹1 in the end of June
2001.
This was because the stock got dumped and thus a lot of investors lost their
money

2.HFCL-

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Analysis-
Similar to the previous case of pentamedia graphics we can also infer from this
chart as well that the stock price of HFCL also decreased heavily , due to which
the trust of investors was broken. Due to this the stock is still not able to recover
to its all time high of ₹1800.

3.GTL Ltd-

Analysis-
The effect of the ketan parekh scam affected this stock adversely as
the stock price went from ₹2250 as it all time high to ₹ 135 in just a
matter of a few months.

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4.Silverline Technologies-

Analysis-
From the above chart we can see that as soon as the news broke of the
Ketan Parekh scam the stock entered in a downward spiral from
₹1050 to ₹4.64 within a few months
5. Zee Entertainment-

Analysis-
From the above chart we can see that the scam had a negative impact
on the stock price in which the price went from ₹650 to ₹71.15.
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The Ketan Parekh scam had a similar effect on various other shares
like Global trust bank, DSQ software, Aftek Infosys an SSI . The
prices of these stocks were heavily manipulated by Ketan Parekh and
all the value of all these stocks were heavily pumped and then
dumped, causing the loss to a lot of retail investors.

2.Satyam Computers scam-

Effect on the stock of Satyam computers after
December 2008

The stock price of Satyam computers started to decrease from

June of 2008 after which the retail investors also started to
panic and sell the stock causing lower circuits and a fall to the
price of ₹100 from ₹500.

3.Sahara Scam-

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After the news of the scam broke out it had a negative effect on the
various subsidiaries of Sahara like in the above chart of Sahara
housing finance. As we can see the price of the share went from
₹1010 to only ₹38 within a few months and continued to stay around
that limit.

4.Saradha chit fund scam-

The Saradha group doesn’t have any publicly listed companies thus we can
understand its effect by using stock indices like NIFTY 50 and Sensex.

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There is a fall in the nifty 50 after the news of Sardha chit fund broke
out from ₹6000 to ₹5471.8 in the month of July

A similar scenario can be seen in Sensex around the same time as

well.

5.NSEL Scam-

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The company that was behind the NSEL scam was financial
technologies India Limited which later changed its name to 63 Moons
technology limited.

This scam was made public in 2013 and a similar negative pattern after the
scam and its price fell from ₹1100.5 to ₹166.9.

6.PACL Scam-
Effect of the scam on NIFTY and SENSEX.

The above graph shows the negative effect of the scam on the NIFTY 50.

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A similar negative disturbance can be seen in the SENSEX chart which is
shown above.

7.NSE Co-location Scam-

Effect of this scam on the NIFTY 50 and SENSEX

It has a negative effect on the nifty 50 as indicated by the graph above.

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A similar effect can be seen in SENSEX around the time when the scam was
disclosed.

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 Chapter 6:
Suggestions

Lessons for the investors from these SCAMS

BLIND INVESTMENTS
A 50-year old domestic help lady living in the outskirts of Kolkata invested Rs
30000 in the deposit run scheme by Saradha Group. She lost her entire amount
as the company shut its operations. An agent of the company attempted suicide

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out of the fear to face depositors. Those who invested money were poor and
uneducated. They believed in the words of the agents and the company’s false
claims. The blind investors ended up loosing money. These people will never be
able to recover their lost amount as the scam is huge and the recovery will take
many years.
REGULATORY REFORMS
These scams exposed significant gaps in India’s Regulatory framework. As a
response the government implemented strict reforms to strengthen regulations
and oversight of investment schemes, chit funds and collective investment
plans. SEBI now has strict guidelines and increased powers to curb fraudulent
activities.
INVESTOR AWARENESS
The Saradha Group Scam served as a wake up call for investors emphasizing
the need for conducting thorough research seeking professional advice, and
investing in SEBI regulated schemes and financial products only. It also made
people aware that financial literacy is also important while taking investment
decisions.
STRINGENT PUNISHMENT
The legal proceedings against Saradha Group culminated in the conviction of
the key individuals involved. Sudipto Sen and others received sentences for
their frauds. Despite of the strict rules and punishments fraudsters are finding
ways and means to do frauds and earn money. It is upon the investor to take a
wise decision before investing
DOCUMENTS AND VERIFICATION NECESSARY
Each and every investment schemes which are SEBI Regulated provide
prospectus and fund related details. Investors before investing should read,
verify and then make investment.
EVERY ONE BUYING IT
Investors often fall prey to such pitches where the agents or company say
everyone buys it , you should also invest. Before falling for this trap investor
must first think whether such type investment will benefit them or not.

Significance of the study-

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Studying stock market scams holds immense significance for several
reasons:
Investor Protection: Understanding how stock market scams operate
helps regulators and investors identify red flags, protect themselves
from fraudulent activities, and safeguard their investments. By
studying past scams, authorities can implement better regulations to
prevent similar incidents in the future.
Market Integrity: Stock market scams undermine the integrity of
financial markets. Researching these scams sheds light on
vulnerabilities within the system, such as loopholes in regulations or
weaknesses in surveillance mechanisms, allowing for improvements
to be made to ensure fair and transparent markets.
Economic Stability: Stock market scams can have far-reaching
consequences, not only for individual investors but also for the
broader economy. Large-scale scams can erode investor confidence,
leading to market instability and economic downturns. Studying these
events can help economists and policymakers understand systemic
risks and develop strategies to mitigate them.
Legal and Regulatory Frameworks: Research on stock market
scams can inform the development of more effective legal and
regulatory frameworks. By analyzing how scams are perpetrated and
how they evade detection, policymakers can strengthen laws and
enforcement mechanisms to better protect investors and maintain
market integrity.
Educational Purposes: Studying stock market scams provides
valuable educational material for investors, financial professionals,
and students. Understanding the tactics used in past scams can help
individuals recognize similar schemes in the future, empowering them
to make informed investment decisions and avoid falling victim to
fraud.
Psychological Insights: Stock market scams often exploit
psychological biases and vulnerabilities in investors. Researching

40 | P a g e
these scams can provide valuable insights into human behavior,
decision-making processes, and the psychology of financial markets,
which can inform both academic research and practical interventions
aimed at reducing susceptibility to fraud.
In summary, studying stock market scams is crucial for protecting
investors, maintaining market integrity, preserving economic stability,
improving regulatory frameworks, educating stakeholders, and
gaining insights into human behavior in financial contexts.

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 Chapter 7:
Conclusion

CONCLUSION-
The conclusion drawn from studying stock market scams and their effects on
the stock market underscores the importance of vigilance, regulation, and
investor education in maintaining market integrity and stability. Here are
some key takeaways:

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Vulnerability of Investors: Stock market scams highlight the susceptibility
of investors to fraudulent schemes, often driven by promises of quick profits
or fear of missing out on lucrative opportunities. Understanding these
vulnerabilities is crucial for designing effective investor education programs
to enhance financial literacy and resilience against scams.
Regulatory Oversight: Effective regulation and enforcement are essential
for detecting and preventing stock market scams. Authorities need to
continuously update and strengthen regulatory frameworks to keep pace with
evolving tactics used by fraudsters. This includes implementing robust
surveillance systems, enforcing transparency requirements, and imposing
severe penalties for fraudulent activities.
Market Confidence: Stock market scams erode investor confidence and
undermine trust in financial markets. Restoring confidence requires swift and
decisive action by regulators to investigate and prosecute perpetrators, as
well as transparent communication to reassure investors about the integrity
of the market.
Systemic Risks: Large-scale stock market scams can pose systemic risks to
the broader economy, potentially leading to market disruptions and
economic instability. It is essential for regulators and policymakers to
identify and address systemic vulnerabilities that could amplify the impact of
such scams, such as excessive leverage, interconnectedness of financial
institutions, or lack of transparency in derivative markets.
Continued Vigilance: Stock market scams are not a thing of the past; they
continue to evolve and adapt to changing market conditions and regulatory
environments. Therefore, maintaining vigilance and staying ahead of
emerging threats are paramount for safeguarding investors and preserving
market integrity.
In conclusion, the study of stock market scams underscores the need for a
multifaceted approach involving regulation, enforcement, education, and
market surveillance to mitigate risks, protect investors, and maintain the
stability and credibility of financial markets.

Bibliography
1.Stock market scams, shell companies, penny shares, boiler rooms and cold calling: The
UK experience- Paul Barnes (https://doi.org/10.1016/j.ijlcj.2016.11.001)

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2. Impact of Stock Market Scams and Bad News on Investors Perception: A Quantitative
Study of Retail Investors- Hemant Chauhan, Deepak Kaushal, Vandana Gandhi, Martin
Yehezkiel Sianipar (https://doi.org/10.52783/jier.v3i2.75)
3.Major Scams in the Indian stock markets – Goel Anshi, Saini
Parul…………………………………..
(https://www.indianjournals.com/ijor.aspx?
target=ijor:aca&volume=5&issue=5&article=019)
4. The Impact of Financial Scams on Investor Behavior- Buddaraju, Anjana; Devaiah,
P.Riya (https://openurl.ebsco.com/EPDB%3Agcd%3A2%3A24746978/detailv2?sid=ebsco
%3Aplink%3Ascholar&id=ebsco%3Agcd%3A151988120&crl=c)
5. Impact of Corporate Scams on share prices: A study of Indian Stock market Mr. Gaurav
Dawar , Ms. Swati Goyal (https://core.ac.uk/download/pdf/234065394.pdf)

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 Annexures

Pentamedia graphics Share prices chart

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46 | P a g e
HCFL price chart

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GTL share price chart

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Satyam Computers Share price chart

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50 | P a g e