InvestorQ : Why have there been so many scams in the stock market?
Dia Deshpande made post

Why have there been so many scams in the stock market?

Ria Jain answered.
2 years ago

Scams are when some unscrupulous elements in the stock market try and take advantage of the loopholes in the system. There have been quite a few well known scams in the stock market. Back in 1992, Harshad Mehta actually used bank funds to prop up the stock markets by using fake Banker Receipts. When the scam to light and the story became public, the stocks suddenly lost their support and they corrected as much as 80-90% over the next few months. Much later in 2000, Ketan Parekh got cooperative banks to issue fake demand drafts without balance and used that to seek funding and prop up the technology stocks. Again, when the scam came to light the technology stocks lost up to 90% of value in the next few months.

Scams have been a part of the stock markets in the past. Over the last 18 years, since the Ketan Parekh scam in 2001, the markets have not seen any major scam. That is because compliance, risk management and the SEBI supervision has become very strong. Markets will still be volatile but people will not be hurt by these scams, which had destroyed wealth prior to 2002. Having said that, there have been cases even in recent times where the investors have lost money. For example, there was the case of the Satyam scam in 2009 and later the NSEL scam in 2013 which destroyed wealth to the tune of Rs.5,600 crore in one of the biggest defaults in memory. Recently, we have also had NBFCs defaulting after a serious maturity mismatch in their lending profile. Scams have been around for a long time and they continue to manifest in different forms.