Capital Market Frauds: Reasons & Avoidances

Abstract

Abstract:

The term "Capital Market Frauds" refers to a diversion of funds from the banking system to various stockbrokers in a series of transactions. The scam has from several years become a permanent feature of the front pages of the newspapers and a matter of great concern. Despite the massive media coverage of the scam, most readers found it hard to understand it particularly when they were confronted with arcane terms and acronyms like ready forward, double ready forward. Nevertheless an understanding of the scam is a prerequisite for any meaningful analysis of policy alternatives to improve the functioning of the financial system. This work presents a plausible reconstruction of how the scam originated, how it was perpetrated, and what would be its aftermath. The paper is expository in nature and the authors make no claims to omniscience.

The work goes on to discuss the response of the government to the

scam in terms of 1) discovering and punishing the guilty, 2) recovering the money, and 3) reforming the system.

While agreeing with the importance of discovering and punishing the guilty, the work argues that the attempt of the government to recover the money by such measures as the tainted shares law which cause severe and unjustified hardship to genuine

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and innocent investors is misguided. Turning to the arena of reforms of the financial system, the paper argues that the origins of the scam lie in overregulation of our markets. It recommends that normal transactions must be allowed to be done openly and transparently, and the role of brokers as market makers must be recognized. The second lesson from the scam is that artificial insulation of closely related markets from each other is counterproductive in the long run. Artificial barriers between the money market and the capital market, between the market for corporate securities and the market for government securities and between the formal money market and the informalone must be eliminated.

Scope and Limitation:

The scope of this work is to analyze the concept of Capital Market Frauds as it has been a matter of discussion since from a very long time and also in what manner this is committed that all the laws and other regulatory bodies are not able t 0 trace that what is going on in the market. The researcher has tried to rely on the law in this regard in the form of Acts, Regulations and Circulars etc.

Research Questions:

);;> To study the investors protection mechanism prescribed by the SEBI. );;> To study SEBI Regulations with respect to stock market frauds. );;> To study the instruments available to SEBI to protect safety and integrity of the stock market.

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;... The scams remain under investigation with no concrete steps taken against default companies.

Hypothesis:

;... Modus operandi for committing Capital Market Frauds. ;... Laws for investor's protection are not efficient enough to curb the menace. ;... SEBI as regulator is not a good boss to regulate its affairs.

Mode of Writing:

The researcher has primarily adopted the descriptive method of writing. The analytical and comparative approach has also been used where ever found necessary.

Mode if Citation:

A uniform mode of citation has been adopted and followed consistently

throughout this work.