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INTRODUCTION Financial scams are one of the most devastating factors for any economy. India has witnessed several scams post 1992, resulting to a dis-balance in the economy often leading to weakening of the market. These include Coalgate scam, the Harshad Mehta Scam, 2G Spectrum scam, Satyam Scam, Hawala Scam, etc. Approximately 73 lakh crore rupees have been lost due to the financial scams since 1992. The control of financial market is one of the constant issue which government faces. The prevention of these scams resulted in the formation of the Securities and Exchange Board of India in 1992.
AREAS AFFECTED BY SCAMS
Economic offenders have exploited millions and billions of money and deceived all the spheres of economic activity by doing several illegal trade practices and by way of scams. The several areas in which scams and frauds have affected the economy are:-
1. Primary Market Frauds:
Primary market is that part of capital market in which new securities are issued on an exchange for companies, governments, and other groups to get finance through debt-based or equity-based securities. These financings are generally raised through Initial Public Offers. There have been many IPO frauds wherein several operators and companies after collecting thousands of crores of rupees from people have disappeared. SEBI seized Rs 1,544 crores from bank accounts of people and companies who were responsible of the IPO frauds, in November 2013.
2. Secondary Market Fraud:
Insider trading is a very common activity in a public company’s stock by someone who has non-public, material information related to that stock for any reason. It becomes unjust for the investors who don’t have access to such information, when the people who are insiders to an organization trade use the information which is not public. This practice violates the basic principle of fair trading and is an expansion of asymmetrical information. This unjust practice is very common in our country in which share prices are artificially rigged so as to profit the ‘insider’. This results in a loss to the common investors.
3. Counterfeit money:
The practice of counterfeiting money is as old as money itself. It means imitation currency produced without the legal sanction to deceive its recipient. It is used by terrorists to fund their operations. So, it is not only a threat to the economy but also a threat to the security of our country.
There are other types of economic crimes like import/export frauds, fake stamp paper, fodder scams and many more.
SEVERAL FINANCIAL SCAMS
Here is a look at several scams that our country witnessed over the last two decades:
1. Harshad Mehta Scam of 1992: India saw an ingenious mechanism of its stock market in 1992. It came to be called as the ‘Securities Scam’, involving a fraud of around Rs 4,000 crore. It is still one of the biggest frauds committed on the Indian stock market to date. Harshad Mehta, who was a popular broker, manipulated the Bombay Stock Exchange along with his partners by exploiting the loopholes in the system. It was a systematic fraud that included bank receipts and stamp papers, and that ultimately led the stock market to crash. The scam shook the country and eventually changed the rules of the game on Dalal Street.
2. Vanishing Companies of 1998: It was an uncommon year when over 600 companies disappeared from the stock markets after raising money. The scam roughly calculated to be worth Rs 800 crore became known when SEBI was investigating several companies which vanished after raising money from the stock markets. In May 1998, it labeled 80 companies that had raised over Rs 330 crore. Later, it was discovered out that over 600 companies were under scrutiny. A Committee was set up to probe which officially identified 238 listed companies, out of which 161 could be traced and 77 are still in the list of disappearing companies.
3. 2G Spectrum scam of 2008: In the year 2008, the government came under scrutiny when it was claimed that they had undercharged mobile telephone companies for frequency allocation licenses that were used to generate 2G spectrum subscriptions. It was the former Telecom minister A. Raja himself at the centre of this scam. The CAG had claimed that the differences between the the money collected and that instructed to be collected was Rs. 1.76 trillion.(Rs. 1,76,000 crore) In 2012, the Apex Court declared the spectrum as “unconstitutional and arbitrary” and led to the cancellation of over 120 licenses.
4. Commonwealth Games Scam of 2010: In 2010, India witnessed the Commonwealth Games (CWG) scam, one of the biggest Indian scams, estimated to be worth Rs 70,000 crore. It was found that only half of the allotted money was spent on Indian athletes. The sportspersons were allegedly asked to shift to miserable apartments from the ones that were given to them. All the accused, including Suresh Kalmadi who was the Chairman of the organising committee of the Games, were charged of cheating, criminal conspiracy, forgery and were also charged under sections of the Prevention of Corruption Act.
WHAT GOVERNMENT SHOULD DO TO STOP FINANCIAL SCAMS
The news of financial scams coming to light every second day has increased the need to tackle the financial crimes.As these scams have a direct and negative impact on the country’s economy, there is a compelling need to modify at the current structure of criminal law to curb the “offences” relating to the financial market. While the regulators and government have presented very strong legislation and policy initiatives, the criminals who game the system pose a grave challenge to the spirit of these reforms. Revamping of laws can deter the commission of such economic crimes. Also the enforcement agencies should try to restrain the benefits arising out of such scams by the offenders. Moreover, the state authority should reduce the scope of bail given to the offenders of scams. Further, the judiciary should also ensure fast and speedy decisions regarding the trials of financial scams.
CONCLUSION The financial scandals which have been discussed above involve gain to some individuals but come at the loss of millions of rupees to millions of investors or the government. It is clearly visible from the above mentioned cases that the spate of such scams can only be credited to the weak financial regulations in finance. While the main objective of the corporate sector is to gain profit, it should not come at the cost of giving up ethics and professionalism.