Invest Guide November 2024

For many years, financial scams have been a problem for India's economy, impacting not only financial institutions but also the trust of the general public. Frauds in India encompass a broad spectrum of illegal activities aimed at deceiving individuals, companies, or financial institutions for monetary gain. Having significant repercussions on India's economy, these scams have led to substantial financial loss for investors and consumers eroding public confidence and destabilizing financial institutions.

Some of the common types and notable frauds can be categorized under the following -

• Banking Frauds
• Investment Frauds
• Insurance Frauds
• Digital Payments Frauds
• Real Estate Frauds
• Tax Evasion and Money Laundering

CASE STUDY :

Satyam Computer Services Fraud -

A well-known financial scam in India is the Satyam Computer Services affair, which is sometimes called "India's Enron.” The Indian corporate community was rocked by this scandal, which also revealed gaps in the regulatory and corporate governance systems.

Satyam Computer Services Ltd. founded by Ramalinga Raju in 1987, was a prominent provider of IT services in India. With a vast global clientele, it was listed on both the New York Stock Exchange (NYSE) and the Bombay Stock Exchange (BSE).

How the fraud unfolded -

In January 2009, Ramalinga Raju acknowledged that he had fabricated the company's financial accounts for several years. He acknowledged lying about the company's earnings, cash on hand, and revenues by an astounding $1.47 billion. Approximately 94% of Satyam's financial reserves were found to be fake, according to the confession.

Impact on various sections -

The scam impacted shareholders, employees, clients' trust Uncovering India's Top and dented the credibility of the Indian IT industry.

Measures to prevent such frauds :

Financial frauds in India are diverse and have varied impacts, from individual investors to the broader economy. Vigilance, regulation, and enforcement play crucial roles in mitigating these risks and ensuring the integrity of financial systems. Strengthening corporate governance and regulatory framework within SEBI (Securities and Exchange Board of India), conducting regular forensic audits and ensuring transparent accounting procedures can help businesses maintain better control over their operations.

Digital Payment Frauds :

Digital frauds in India have been on the rise as more people adopt to online payment methods. Some of the types of digital fraud in India are Phishing Attacks, Vishing and Smishing, Card Skimming, SIM Swap Fraud, Malware Attacks,E-commerce Frauds, UPI Frauds.

The Reserve Bank of India's (RBI) 2024 annual report shows that in FY24, the largest number of banking frauds were related to the card/internet category with 29,082 incidents accounting for 80 per cent of all frauds. This was 334 per cent higher than the 6,699 frauds in this category in FY23. The 29,082 frauds in FY24 account for ₹1,457 crore worth of card/internet fraud, the highest amount in the last six years.

CASE STUDY :

Paytm Phishing Scam -

In an attempt to trick customers into verifying their accounts or claiming rewards, fraudsters pose as Paytm and send phony texts or emails. Victims are then directed to fraudulent websites where they enter sensitive information, leading to unauthorized access to their accounts.

E-commerce Fraud -

Stories of fraudulent websites or merchants on websites such as Amazon or Flipkart defrauding customers by shipping counterfeit goods after payment or by not delivering the goods at all.

Jamtara Phishing Scams -

The small Jharkhand village of Jamtara gained notoriety for its phishing scams, in which con artists would pose as bank employees and fool victims into disclosing their banking information.

Yes Bank UPI Fraud -

This notable UPI fraud took place in 2020 in which thieves took advantage of holes in the UPI technology to steal money from consumer accounts.

Measures to Combat Digital Frauds -

India is seeing an increase in the threat of digital fraud, which calls for a diversified strategy to counteract. Following RBI guidelines, data protection laws, using AI and machine learning, blockchain technology and public awareness campaigns can improve and protect businesses and people from fraudulent digital scams.

Investment Frauds :

Often referred to as “get rich quick schemes” investment scams involve fraudsters posing as legitimate financial professionals to lure and cheat gullible investors with unreasonably high rates of return.

Highlighting significant Investment Frauds in India :

Saradha Chit Fund Scam (2013) -

The Saradha Group operated a massive chit fund scheme collecting money from millions of investors from West Bengal and other states and promising high returns. The scheme eventually collapsed when it was unable to pay back investors.

Ketan Parekh Scam (2001) -

The Ketan Parekh Scam was one of the largest stock market scams that exposed issues for equity investors, the Securities Exchange Board of India, and other regulatory bodies. Accused of manipulating stock prices, over valuation of stocks, he created a perception of high demand and drew unsuspecting investors. The scam finally unravelled in 2001 when the stock market crashed leading to massive sell off.

The scam highlighted several crucial lessons for investors. Investors should conduct thorough due diligence before investing in stocks and be wary of promotions that seem far too good. The need for strong regulatory frameworks like SEBI to detect and prevent market manipulation and awareness of market dynamics about investing in volatile stocks is essential for protecting investor interests.

Closing Thoughts -

Protecting investors from financial scams is crucial for maintaining trust in the financial system. Here are several strategies and best practices that can help safeguard individuals and organizations:

• Education and awareness -
  Financial literacy and staying informed about market trends can help investors make well informed investment choices. Stay updated with market updates, news articles and invest guides on InvestOnline.in

• Be sceptical of finfluencers and misleading investment personnel promising unusually high returns with limited risks
• Use Trusted Platforms with secure payment systems for online transactions