Methods or ways to prevent scams/frauds:

1.  Financial self-defense measures: (Individual awareness and analysis) “will help protect from abusive, fraudulent and
unethical financial practices.”

 Don’t be a courtesy victim.  Con artists will not hesitate to exploit the good manners of the
potential victim.  Remember that a stranger who calls and asks for your money is to be
regarded with utmost caution and skepticism. You have absolutely no obligation to stay on
the phone with a stranger who wants your money. It's not impolite to say you are not
interested and hang up.
 Don’t be rushed – check it out.  Say no to any salesperson that pressures you to make an immediate
decision.  If he or she doesn’t have the time to explain the investment to your regular investment
professional, or other party, or if they ask “Can’t you make your own investment decisions?”  Say NO! 
You have the right and responsibility to check out the salesperson, firm, and the investment opportunity
itself.  Almost all investment opportunities must be registered with the Securities Division.  Extensive
background information on investment professionals and firms is available from the Securities Division.
Before you even consider investing, get the prospectus, review it carefully, and make sure you
understand all the risks involved.  But remember, even written material sent from the promoter can
be fraudulent or misleading.

 Always stay in charge of your money.  Don't be taken in by anyone who wants your money
and assures you that he or she is a professional and can handle everything.   Beware of any
financial professional who suggests putting your money into something you don’t
understand.  And never let yourself be talked into leaving everything in his or her hands.  
 Always watch over and protect your nest egg.  Never trust anyone who wants you to turn
over your money to them and then sit back and wait for results.   If you understand little
about the world of investments, take the time to educate yourself.   Constant vigilance is a
necessary part of being an investor.
 Never judge a person’s integrity by how they look or sound.  Far too many investors who
are wiped out by con artists later explain that the swindler “looked and sounded so
professional."  Successful con artists sound extremely professional and have the ability to
make even the flimsiest investment deal sound as safe as putting money in the bank.  
Remember that sincerity in a voice, especially on the phone, has no bearing on the
soundness of an investment opportunity.   Always do the necessary homework.
 Watch out for salespeople that prey on your fears.  Con artists know that many investors,
particularly older investors, worry that they will either outlive their savings or see all of their
financial resources vanish overnight as the result of a catastrophic event.   It's quite common
for swindlers and abusive salespeople to pitch their schemes as a way to build up life savings
to the point where such fears are no longer necessary.   Remember that fear and greed can
cloud your good judgment and leave you in a much worse financial posture.   An investment
that is right for you will make sense because you understand it and feel comfortable with the
degree of risk involved.  High return almost always means high risk.
 Exercise particular caution if you have limited or no experience handling money.   Ask a con
artist to describe his ideal victim and you're likely to hear "elderly widow or widower."  
Many people now in their retirement years have limited knowledge about handling money.  
They often relied on their spouses to handle most or all money decisions.   Those who have
received windfall insurance in the wake of the death of a spouse are prime targets for con
artists.  People who are on their own for the first time in years should  always seek advice of
family members or impartial professionals before deciding what to do with their money.
  Monitor your investments and ask tough questions.  Too many investors trust unscrupulous
investment professionals and outright con artists to make financial decisions for them.   They
then compound their error by failing to keep an eye on the progress of the investment. Insist
on regular written reports.  Check the written information.  Look for excessive or
unauthorized trading in your funds.   Don’t be swayed by assurances that such practices are
routine or in your best interest.  Don’t permit a sense of friendship or trust to keep you from
demanding this information. If you suspect something is wrong and you don’t get
satisfactory answers, call the Securities Division and let us help.
 Look for trouble retrieving your principal or cashing out profits.  If a stockbroker, financial
planner, or other individual stalls you when you want to pull out your principal or profits,
demand to know why.  Since unscrupulous investment promoters have probably pocketed
the funds of their victims, they will go to great lengths to explain why your savings are not
available.  They may even pressure you to “roll over” non-existent profits into new and even
more alluring investments. This will only further delay the fraud being uncovered.   If you're
not investing in a product with a fixed term, such as a bond, you should be able to receive
your funds or profits within a reasonable amount of time.
 Don’t let embarrassment or fear keep you from reporting investment fraud or abuse.  Investors
who fail to report that they've been victimized often hesitate out of embarrassment. Older investors fear
they'll be judged incapable of handling their own affairs and be forced into a nursing home or other
facility.  Sophisticated investors don't want to admit that a smooth talker took them in.  Con artists know
all about such sensitivities.
They count on these fears preventing or delaying the time when the authorities will be notified about the
scam.  It's true that most money lost to investment fraud is rarely recovered beyond pennies on the
dollar.  In many cases, however, when investors recognized early that they'd been misled, they were
able to recover some or all of their funds by being a “squeaky wheel”.  One of the best resources for
investors who fear they have been victimized is the Securities Division of the Department of Financial
Institutions.

2. Boost the morale of professionals as well as investors dealing in the capital market,

Top Tips to Protect Yourself Against

Frauds and Scams, Identity Theft and
Reduce Spam Email
What can you do to defend yourself from scams, frauds and identity theft?
Whether you think you have been the victim of a fraud or scam or want to be
proactive in protecting yourself, here is a list of specific and simple
actions that you can take, some just once, to protect yourself and your
family!  We have ranked them in order that you should take them:

1. Don't use or carry a checkbook. Pay by cash or credit card. Paying your
bills through your bank or credit union's online bill paying service
(which is usually free) is much safer than mailing a check.
2. Buy and use a paper shredder. Shred any documents that have your social
security number or other financial information, such as your bank
account numbers, credit card numbers etc.  identity thieves actually go
through homeowner's trash to obtain personal information. If you don't
 have a shredder, burn these  documents completely in the fireplace. For
large volumes of sensitive documents, you can go to a paper shredding
service.
3. Freeze your credit!  It prevents scammers from opening unauthorized
accounts in your name. Even if your state is one of the few that
doesn't allow a freeze, thanks to pressure from consumer advocacy
groups, you can still freeze your files at the three major credit
bureaus.  See this page for more information about both freezes.
4. Sign up on the Do-Not-Call List
5. Sign up to block credit card offers  from arriving in your mailbox.
6. Don't carry your Social Security card with you. When you renew your
driver's license, make sure the DMV does not use your Social Security
number as your driver's license number.
7. Use a separate email address when you post messages to any public
forum, such as newsgroups and mailing lists. Free email accounts
from Yahoo and Hotmail are perfect for this. Never use your personal
email address for this purpose: you will be flooded with spam. You can
periodically check this email account to see what's spam and what
isn't. A bonus is that Yahoo's spam blocker is better than those from
most ISP's! And your main personal email address won't be as clogged
with spam. Some ISP's, like AOL and BellSouth.net give you multiple
email accounts free with your paid service.
8. Don’t give out any financial information, such as checking account
and credit card numbers; and especially your social Security number; on
the phone or online, unless you initiate the call and know the person
or organization you’re dealing with. Don’t give that information to
any stranger. In general, it is only required for medical providers,
banks, mortgages and credit card companies.
9. Don't fill out the "win a vacation" and other promotions you see in
stores and shopping malls.  That will just get you on a junk mailing
list and guarantee calls from persistent, high-pressure salesmen.
10.Don’t pre-print your driver’s license, telephone or Social Security
numbers on your checks. And in states that want to use your social
security number as your driver's license number, insist on another
method - most allow it.
Harshad Mehta & Ketan Parekh Scam
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Harshad Mehta: the high-profile stockbroker

Harshad Shantilal Mehta (1954-2002) was an Indian stockbroker who grabbed headlines for the notorious BSE security scam
of 1992. Born in a lower middle-class Gujarati Jain family, Mehta spent his early childhood in Mumbai where his father was a
small-time businessman. The family relocated to Raipur in Chhattisgarh after doctors advised Mehta’s father to shift to a drier
place on account of his health.

Transition from an ordinary broker to ‘Big Bull’

Mehta studied in Holy Cross Higher Secondary School, Byron Bazar, Raipur. He quit his job at The New India Assurance
Company in 1980 and sought a new one with BSE-affiliated stockbroker P. Ambalal before going on to become a jobber on the
BSE for stockbroker P.D. Shukla. In 1981, Mehta became a sub-broker for stockbrokers J.L. Shah and Nandalal Sheth. Having
gained considerable experience as a sub-broker, he teamed up with his brother Sudhir to float a new venture called Grow More
Research and Asset Management Company Limited. When the BSE auctioned a broker’s card, the Mehta duo’s company bid
for it with the financial support of J.L. Shah and Nandalal Sheth. Another name that is rumored to have a crucial hand in the
scam was Nimesh Shah. However, Shah could keep a safe distance from the accusations and is currently known to be a heavy
player in the Indian stock market.

By year 1990, Mehta became a prominent name in the Indian stock market. He started buying shares heavily. The shares of
India's foremost cement manufacturer Associated Cement Company (ACC) attracted him the most and the scamster is known
to have taken the price of the cement company from 200 to 9000 (approx.) in the stock market – implying a 4400% rise in its
price. It is believed that It was later revealed that Mehta used the replacement cost theory to explain the reason for the high-
level bidding. The replacement cost theory basically states that older companies should be valued on the basis of the amount
of money that would be needed to create another similar company. By the latter half of 1991, Mehta had come to be called the
‘Big Bull’ as people credited him with having initiated the Bull Run.

The making of the 1992 security scam

Mehta, along with his associates, was accused of manipulating the rise in the Bombay Stock Exchange (BSE) in 1992. They
took advantage of the many loopholes in the banking system and drained off funds from inter-bank transactions. Subsequently,
they bought huge amounts of shares at a premium across many industry verticals causing the Sensex to rise dramatically.
However, this was not to continue. The exposure of Mehta's modus operandi led banks to start demanding their money back,
causing the Sensex to plunge almost dramatically as it had risen. Mehta was later charged with 72 criminal offences while over
600 civil action suits were filed against him. Significantly, the Harshad Mehta security scandal also became the flavor of
Bollywood with Sameer Hanchate's film Gafla.

The 1992 security scam and its exposure

Mehta's illicit methods of manipulating the stock market were exposed on April 23, 1992, when veteran columnist Sucheta Dalal
wrote an article in India's national daily The Times of India. Dalal’s column read: “The crucial mechanism through which the
scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from
one bank to another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewelers.
The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan,
typically at a slightly higher price.” In a ready-forward deal, a broker usually brings together two banks for which he is paid a
commission. Although the broker does not handle the cash or the securities, this was not the case in the prelude to the Mehta
scam. Mehta and his associates used this RF deal with great success to channel money through banks.

The securities and payments were delivered through the broker in the settlement process. The broker functioned as an
intermediary who received the securities from the seller and handed them over to the buyer; and he received the check from
the buyer and subsequently made the payment to the seller. Such a settlement process meant that both the buyer and the
seller may not even know the identity of the other as only the broker knew both of them. The brokers could manage this method
expertly as they had already become market makers by then and had started trading on their account. They pretended to be
undertaking the transactions on behalf of a bank to maintain a façade of legality.

Mehta and his associates used another instrument called the bank receipt (BR). Securities were not traded in reality in a ready
forward deal but the seller gave the buyer a BR which is a confirmation of the sale of securities. A BR is a receipt for the money
received by the selling bank and pledges to deliver the securities to the buyer. In the meantime, the securities are held in the
seller’s trust by the buyer.

Complicit lenders

Armed with these schemes, all Mehta needed now were banks which would readily issue fake BRs, or ones without the
guarantee of any government securities. His search ended when he found that the Bank of Karad (BOK), Mumbai and the
Metropolitan Co-operative Bank (MCB) two small and little known lenders, were willing to comply. The two banks agreed to
issue BRs as and when required. Once they issued the fake BRs, Mehta passed them on to other banks who in turn lent him
money, under the false assumption that they were lending against government securities. Mehta used the money thus secured
to enhance share prices in the stock market. The shares were then sold for significant profits and the BR retired when it was
time to return the money to the bank.

Outcome

Mehta continued with his manipulative tactics, triggering a massive rise in the prices of stock and thereby creating a feel-good
market trajectory. However, upon the exposure of the scam, several banks found they were holding BRs of no value at all.
Mehta had by then swindled the banks of a staggering Rs 4,000 crore. The scam came under scathing criticism in the Indian
Parliament, leading to Mehta's eventual imprisonment. The scam’s exposure led to the death of the Chairman of the Vijaya
Bank who reportedly committed suicide over the exposure. He was guilty of having issued checks to Mehta and knew the
backlash of accusations he would have to face from the public.

A few years later, Mehta made a brief comeback as a stock market expert and started providing investment tips on his website
and in a weekly newspaper column. He worked with the owners of a few companies and recommended the shares of those
companies only. When he died in 2002, Mehta had been convicted in only one of the 27 cases filed against him. What attracted
the taxman’s attention was Mehta's advance tax payment of Rs 28-crore for the financial year 1991-92. Another eye-catcher
was his extravagant lifestyle.
I-T, PSBs recover dues nine years after Mehta's death

Nine years after Harsad Mehta died, the I-T department and public sector banks (PSBs) have successfully recovered a
significant portion of their claims emerging out of the securities scam from his liquidated assets. The Supreme Court directed
the Custodian of the attached properties and assets of the Harshad Mehta Group (HMG) in March 2011 to make payments of
Rs1,995.66-crore to the I-T department and Rs 199.25-crore to the State Bank of India (SBI), making the two institutions two of
the earliest claimants to recover their dues.

While the SBI’s total principal amount claim of Rs 1,000-crore have been largely settled, financial institutions have also
received some money. However, Standard Chartered Bank, which had claimed Rs 500-crore, has yet to recover its dues it was
one of the late claimants. Although the total claim over the HMG is of more than Rs 20,000-crore, the apex court has said that
for the present, it would only consider claims towards the principal amount.

Who is Ketan Parekh

Ketan Parekh is a former stockbroker based in Mumbai who was convicted in 2008 for being involved in engineering the
technology stocks scam in India’s stock market in 1999-2001. A chartered accountant by training, Parekh comes from a family
of brokers and is currently serving a period of disqualification from trading in the Indian bourses till 2017.

Ketan Parekh has been accorded with sobriquets such as the Pentafour Bull and the One Man Army by the country’s national
business newspapers, while the market simply refers to him as ‘KP’ or associates him with his firm NH Securities. Parekh is
known to have no reluctance in meeting the press. He is also known to have razor-sharp forecasts on market developments.

What distinguishes Ketan Parekh from the 'Big Bull' late Harshad Mehta

The two have been compared by people to have operated their scams using similar means and that their backgrounds were
similar as well. But the differences are very conspicuous.

At the outset, Mehta came from a lower middle-class and modest background, while KP’s family has been engaged as
stockbrokers for a significant time. He is also related to many prominent brokers. Secondly, when Mehta was operating, the
market was still a closed one and was just beginning to liberalize. It was revealed later that Mehta operated using the money of
other people as his last recourse. Further, Mehta is known to have resorted to aggressive publicity campaigns whereas KP
operates almost clandestinely. The latter has also been successful at creating stories and selling them aggressively to
institutional investors.

The Midas touch

Parekh attracted the attention of market players and they kept track of every move of Parekh as everything he was laying his
hands on was virtually turning into gold. But the Pentafour Bull still kept a low profile, except when he hosted a millennium party
that was attended by politicians, business magnates and film stars. And by 1999-2000, as the technology industry began
embracing the entire world, India’s stock markets started showing signs of hyper-activity as well and this was when KP struck.

Almost everyone, from investment firms which were mostly controlled by promoters of listed companies to foreign corporate
bodies and cooperative banks were eager to entrust their money with Parekh, which, he in turn used to inflate stock prices by
making his interest obvious. Almost immediately, stocks of firms such as Visual soft witnessed meteoric rises, from Rs 625 to
Rs 8,448 per unit, while those of Sonata Software were up from Rs 90 to Rs 2,150. However, this fraudulent scheme did not
end with price rigging. The rigged-up stocks needed dumping onto someone in the end and KP used financial institutions such
as the UTI for this.

When companies seek to raise money from the stock market, they take the help of brokers to back them in raising share prices.
KP formed a network of brokers from smaller bourses such as the Allahabad Stock Exchange and the Calcutta Stock
Exchange. He also used ‘BENAMI’ or share purchase in the names of poor people living in Mumbai’s shanties. KP also had
large borrowings from Global Trust Bank and he rigged up its shares in order to profit significantly at the time of its merger with
UTI Bank. While the actual amount that came into Parekh's kitty as loan from Global Trust Bank was reportedly Rs 250 crore,
its chairman Ramesh Gelli is known to have repeatedly asserted that Parekh had received less than Rs 100 crore in keeping
with RBI norms.

Parekh and his associates also secured Rs 1,000-crore as loan from the Madhavpura Mercantile Co-operative Bank despite
RBI regulations that the maximum amount a broker could get as a loan was Rs15-crore. Hence, it was clear that KP’s mode of
operation was to inflate shares of select companies in collusion with their promoters.

Lady luck disfavours Parekh!

Notably, a day after the presentation of the Union Budget in February 2001, Parekh appeared to have run out of luck. A team of
traders, Shankar Sharma, Anand Rathi and Nirmal Bang, known as the bear cartel, placed sell orders on KP’s favorite stocks,
the so called K-10 stocks, and crushed their inflated prices. Even the borrowings of KP put together could not rescue his scrips.
The Global Trust Bank and the Madhavpura Cooperative were driven to bankruptcy as the money they had lent Parekh went
into an abyss with his reportedly favourite K-10 stocks.
The exposure of the dupe

As with the Harshad Mehta scam, Ketan Parekh's fraudulent practices were first exposed by veteran columnist Sucheta Dalal.
Sucheta's column read, “It was yet another black Friday for the capital market. The BSE sensitive index crashed another 147
points and the Central Bureau of Investigation (CBI) finally ended Ketan Parekh’s two-year dominance of the market by
arresting him in connection with the Bank of India (BoI) complaint. Many people in the market are not surprised with Parekh’s
downfall because his speculative operations were too large, he was keeping dubious company, and he was dealing in too many
shady scrips.”

When the prices of select shares started constantly rising, innocent investors who had bought such shares believing that the
market was genuine were about to stare at huge losses. Soon after the scam was exposed, the prices of these stocks came
down to the fraction of the values at which they had been bought. When the scam did actually burst, the rigged shares lost their
values so heavily that quite a few people lost their savings. Some banks including Bank of India also lost significant amounts of
money.

Dalal goes on to state that Parekh's scheme was not visible to a layman given the positive deflection that media had made him
a hero while some of the biggest national dailies had even quoted him profusely on that year’s Union Budget. Dalal added that
KP’s arrest and the uncanny similarity of his operations to the Harshad Mehta securities scam of 1992 vindicated the miserable
inadequacy of the country’s regulatory system. The Securities Exchange Board of India (SEBI) and the Reserve Bank of India
(RBI) had remained complacent when the stock bubble was created during the latter half of 1999 and through 2000 while it had
not bothered to take any action through 2001 when it was ready to burst.

SEBI’s damage control measures

SEBI investigations into Parekh's money laundering affairs revealed that KP had used bank and promoter funds to manipulate
the markets. It then proceeded with plugging the many loopholes in the market. The trading cycle was cut short from a week to
a day. The carry-forward system in stock trading called ‘BADLA’ was banned and operators could trade using this method.
SEBI formally introduced forward trading in the form of exchange-traded derivatives to ensure a well-regulated futures market.
It also did away with broker control over stock exchanges. In KP’s case, the SEBI found prima facie evidence that he had
rigged prices in the scrips of Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer.

Furthermore, the information provided by the RBI to the Joint Parliamentary Committee (JPC) during the investigation revealed
that financial institutions such as Industrial Development Bank of India (IDBI Bank) and Industrial Finance Corporation of India
(IFCI) had given loans of Rs 1,400 crore to companies known to be close to Parekh.

Criticism of SEBI

Some of the regulatory actions SEBI undertook came under scathing criticism from some quarters who accused it of still being
clueless about its supervisory duties. Observers said the regulator still continued believing that its only priority was to prevent a
fall in stock prices.

It was rumored that SEBI banned short sales and increased margins creating a virtual cash market in the process and
squeezed turnover to a sixth of the normal level. It also fired all broker directors from the Bombay Stock Exchange and Calcutta
Stock Exchange and declared the completion of three controversial settlements of the Kolkata bourse by retaining a sizeable
proportion of the payout of operators who had allegedly tied-up for collusive deals. Furthermore, SEBI rounded up the bear
operators and launched an inquiry into their alleged short sales.

Stringent regulatory measures follow Parekh episode

Parekh's fraudulent operations motivated the authorities to take necessary steps that have made made India's stock markets
relatively safer in present times. He can also be credited for having forced indolent policy-makers to bring about reforms in the
financial system.

An active trader

According to an Intelligence Bureau report, though disbarred from trading in the country’s bourses until 2017, is still operating in
the markets through conduits, vindicating Dalal Street’s belief that he has never left the market. The report says that as recently
as December 2010, KP has been rallying behind different stocks and placing some of them at rigged up prices to large
institutions such as the LIC. He is operating through little-known investment firms, market operators and a following of loyal
brokers. KP, who was at the forefront during the technology shares-led bull run in 1999-2000, is apparently using front entities
such as Orchid Chemicals , GMR Infrastructure, Cairn India, Deccan Chronicles Holdings, Reliance Industries, Punj Lloyd,
Indiabulls Real Estate, Pipavav Shipyard, Amtek Auto, Hindustan Oil Exploration, UCO Bank, State Bank of India, EIH and
JSW Steel, among others, to trade in shares.

The report further states that KP has been instrumental in inflating the share price of SKS Microfinance from Rs850 to Rs1,100
following its listing in August 2010. He has also rigged IPOs of little known companies by buying out 50% of the issue in
collusion with his Kolkata-based associates. KP and his associates have also acquired very large positions in petroleum
companies such as ONGC and HPCL, according to the report. An IB official has further said that KP and his team have
revealed to their close associates that they have insider information on the government's proposal to decontrol the sale of gas
which is expected to raise profit margins of these companies by about 20%.

- See more at: http://flame.org.in/knowledgecenter/scam.aspx#sthash.njMmRSpd.dpuf