Explain Scam 2003 in 500 words
Scam 2003, also known as the Indian stock market scam, was one of the biggest financial scams in the history of India. It involved the manipulation of stock prices and the illegal diversion of funds by Harshad Mehta, a prominent stockbroker and businessman. This scam not only shook the Indian financial system but also exposed the loopholes and weaknesses in the regulatory framework.
Harshad Mehta was a well-known figure in the stock market during the 1980s and early 1990s. He gained fame as the "Big Bull" for his ability to manipulate stock prices and make huge profits. Mehta's modus operandi involved exploiting the banking system's loopholes to manipulate the stock market.
In the early 1990s, Mehta discovered a loophole in the banking system known as the "ready forward" deal. This deal allowed banks to lend against government securities, which were considered safe investments. Mehta exploited this loophole by using fake bank receipts and manipulating the demand and supply of shares to artificially inflate stock prices.
The scam came to light in April 1992 when journalist Sucheta Dalal published an article in The Times of India exposing Mehta's fraudulent activities. This led to a panic in the stock market, resulting in a significant crash. The government and regulatory authorities launched an investigation into the matter, which revealed the extent of Mehta's manipulation.
Mehta's scam involved diverting funds from banks to stock markets, creating a false demand for stocks and artificially inflating their prices. He used the money obtained from banks to buy shares, leading to a surge in stock prices. This, in turn, attracted other investors, including foreign institutional investors, who further pushed up the prices. Mehta's manipulation was so widespread that he was able to influence the stock market index, known as the Bombay Stock Exchange (BSE) Sensex.
The scam also exposed the shortcomings in the regulatory system. The Securities and Exchange Board of India (SEBI), the regulatory body responsible for overseeing the stock market, was ill-equipped to deal with such manipulations. The scam highlighted the need for stricter regulations and better surveillance mechanisms to prevent such frauds in the future.
As a result of the scam, the Indian government took several measures to strengthen the regulatory framework. The SEBI was given more powers to monitor and regulate the stock market. The government also introduced reforms to improve transparency and accountability in the banking sector.
The aftermath of the scam saw legal proceedings against Harshad Mehta and several others involved in the fraud. Mehta was charged with multiple offenses, including cheating, forgery, and criminal conspiracy. However, he died in 2001 before the trial could be completed.
Scam 2003 left a lasting impact on the Indian financial system. It shattered investor confidence and led to a period of uncertainty in the stock market. The scam also highlighted the need for better risk management practices and stricter regulations to prevent such scams in the future.
In conclusion, Scam 2003, also known as the Indian stock market scam, was a significant financial fraud orchestrated by Harshad Mehta. It involved the manipulation of stock prices and the illegal diversion of funds. The scam exposed the weaknesses in the regulatory framework and led to reforms in the Indian financial system.