Can you explain how a typical stock market scam takes place, using a simple and easily understandable analogy?











The most nasty scam which I have seen in stock markets during my career of 12years in stock markets as a Trader,Stockbroker,Arbitrager have taught me how,Big fish(Promoters of company,Stakeholders,stockbrokers,Chartered accountants)Play with faith and wealth of small investors.
I learnt this scam during initial days of my CA articleship.
Here comes the detailed story of how this scam takes place,In Marwari community we call it “Jama kharchi”
Supose I am a person who have a Tax liabilities of say 10Cr occurred from sale of property,business income etc.Now I do not want to give the entire amt. 10Cr.
Loss in stock markets can be set off against business profit.I will let my Auditing firm know about my intentions of saving tax.
Next,My CA who is in contact with some listed company’s unethical promoters.He explain the scenario of me to them.Next comes,The role of dishonest promoter of said Listed company!
The deal made is that,I will buy say 20Cr worth shares of xyz company @100 from my trading cum Demate account,Payment will be deducted for the same from my trading account with broker.
Next comes the interesting part,It’s a deal between me and promoter of xyz company that,He will make the price fall for his company’s share to 50.and I will sell it at ₹50,which I have bought at 100.which results into a loss of 10Cr for me in my books of account.
The amount of ₹20Cr which I have made payment from my trading account for buying those shares,Is given back to me in Cash mode 2 days later after settlement is made by exchange with company.
Now comes the maths part,I have paid ₹20Cr to buy shares,after deducting say 10% commission of promoters for providing me loss of 10cr by pulling price down of stock,They pays me back 9Cr in cash mode.Now all I have is 10cr securities lying with me,which is coming to 50 in next 1mth. As soon as it comes to 50,I will sell those shares and will book loss of money and 10Cr.That will result in to a loss of ₹10cr loss in my books of accounts.And will escape me from paying any tax,as my books are in loss.
As soon as I receive that 10cr in my demate account,I will have 19cr in net with me.
Conclusion is I have bought 10cr loss by paying fees of ₹1cr.
Promoter have sold shares to me at 100 worth of 20Cr,And thy are again buying from me by paying for 10Cr when price is ₹50/share.
All they have made is 1cr commission for this dirty job,And I have saved 10cr of tax on my income from other sources.
Now promoter will again search someone who want to buy profit for himself in his books although he is not profitable at his business,so that he can make strong balance sheet for himself to dupe banks.And share price will be taken up this time.
It’s a win win situation for all,The only person who is lossing,are retail investors……
I can even name a few companies too who are in such practises since a long time.
Tanla solution
Eveready
McLeod russel
Kabra drugs
etc.
Do upvote if you like my answer,Soon I will share a few more scams by which investors are duped crores…
Thank you!
Edit 1-Calculation goes like this,I am the person who want to save tax of now 10cr,I bought 20Cr worth shares from promoter with mutual understanding @₹100/share.As soon as promoter recieves money he sent half of that back in cash mode after deducting his ₹1cr commission,Now I have 9Cr back in cash mode.1month later I will have ₹10cr more by selling those shares @₹50/share when share price falls.
Conclusion is I made 10cr Loss in books of accounts,But I have got 9Cr out of that in cash mode.
So actually I am sitting with 9Cr profit,Because I have duped tax department by showing loss in securities transaction

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