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KYC SCAM of 2005: How a photographer made Rs 41,34,00,000 through IPOs

The word scam has became very common in today's financial world as a number of scams were happened in the past which results in loss of money which earned by common people through their hardworks. After the happening of Harshad Mehta's Scam of 1992, Ketan Parikh's K-10 Scam SEBI has made strict rules and regulations to secured that such type of scam may not be happen in the future. 


Scam



But, nothing would be changed the engineering criminal minds always exploits the loopholes of the system and found a new way to successfully execute the scam. 

In this article we cover a new type of scam which happened in 2005. Very we people are know about this scam, so we decided to write on it. 

Table of Contents:


KYC SCAM 2005-





Who was the Mastermind behind the scam? 


The scam was executed by Deepak Panchal with the help of his friends. First we introduce Deepak Panchal. Professionally Deepak was a Chartered Accountant who have good knowledge of stock market and financial world. Also, he knows that most of the time investing in IPOs will give good returns. In this way the idea of a ipo scam came in his mind. 

How the scam was executed? 


In 2003, the RBI has enforced a KYC process to open an account in the banks. Initially, some banks do not follow the RBI's guidelines and opened accounts in the bank by taking a one photocopy and name. This loophole is efficiently exploited by Deepak Panchal to execute this scam. 

Then he engaged in searching the banks which do not follow the KYC process. He found that Indian Overseas Bank did not follow the KYC process. 

Deepak Panchal have a family photo studio named 'Panchal Studio'. He has given an advertisement in the newspaper to came in his studio and take two photocopy free. 

Due to the greed of free photocopy people came in the studio and take the free photocopies. In this way by using the photocopy of people he has opened many saving accounts and using saving accounts opened same number of demat accounts. 

When a company introduce its ipo Deepak apply for the ipo from multiple fake accounts. When ipo is allotted to him he transffered the all shares in one account and on listing date sold it. In this way he started to make a good profit. The scam was continued to 2005.

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How the scam came in the eyes? 


The scam was first came in the eyes of Income Tax department when they found that some gujarati people's were continuously paying heavy amount of capital gain tax. 

When these people's were interrogatted by some officers of IT department they were not able to answer the questions asked by the officers. 

So, IT department have written a letter to capital market regulator i.e. SEBI that they suspect some people of Gujarat that they have wrongly earned huge profit in stock market. 

After getting the tip from IT department SEBI checked the demat accounts of these peoples. Then they found that between the period of 2003 to 2005 a lots of shares were transferred to these accounts by other peoples which was very strange thing. SEBI thinks that why  peoples were transferring their shares to these accounts. And in the end they found that Deepak Panchal and his friends were are behind this scam. They are using fake accounts which are on the name of other people's to manipulate the market. The scam was around of Rs 41,34,00,000.

SEBI has finalized  Deepak's and his friends accounts and distributed the money to the people who were had the real potential to allot the shares. 

Then after, RBI has taken strict action on account opening process. RBI has made it KYC process mandatory to open an Bank account in the Bank. Similary, the SEBI also made KYC process mandatory to open a Demat Account with a live 2 second video. 

Now, if you have to open a Demat Account online you have to give an image of Pan card and Adhaar card, Bank passbook, with a passport size photo and 2 second live video. 

Closing Thought:


Apart from the rules of the SEBI and RBI we have witnessed so many scams in stock market. It is proved by them that criminal minds always find a new way to do the scam, and we can't do anything for that. But we can aware about that when we submit our document anywhere make sure that how our document is utilized by third party. 

I hope you like this article. If you have any questions asked me in the comment box. 









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