Share price rigging is rampant during bull runs. To see how it happens, let’s check the modus operandi.

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• Business Ethics
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• CASE 2 (20 Marks)
• Share price rigging is rampant during bull
  runs. To see how it happens, lets check the
  modus operandi. The main format which evolved
  during Harshad Mehtas time, involves three
  participants promoters, operator and a broker
  syndicate. There are ancillary participants like
  fake bill-sellers, and also perhaps unscrupulous
  auditors and officials. The promoter first finds
  an operator or vice versa. The promoter should be
  interested in bumping up the share price, the
  motivation for which could vary from the basic
  offloading his stake at a high price to gullible
  retail investors to the more advanced

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• Which comprises complex needs like getting
  better validation for a GDR issue or in an M A.
  it works like this the promoters commit to the
  operator not to sell the market while the
  operation is on. He gives about 10 of his stake
  to the operator of companies affiliated to the
  brokrs syndicate. The syndicate normally
  comprises 6-10 brokers, often dispersed in
  different cities so as not to arouse suspicion of
  SEBI or the stock exchange. Their role is to do
  circular trading which works like this say
  broker A sells to B at Rs. 4.5 will sell to C at
  Rs. 4.65 and so on. The trades are designed to
  generate the impression of large liquidity. After
  taking prices to certain level, news flow is
  created. The news is typically about large orders
  and capacity expansion. These days it is often
  about an acquisition or restructuring. Also,
  financial results need to show improvement.

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• This is done by buying revenue. There are
  agents who sell fake bills at a certain
  commission, which could be between 0.5 and 10.
  ET has learnt this market tends to boom at the
  same time as share markets. After the price
  reaches the target, the syndicate exits. The
  gains are split between the promoter, operator
  and syndicate members. In this artificially
  created bull run, there is a new element people
  trying to convert black money to white.

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• Answer the following question.
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• Q1. Give an overview of the case.
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• Q2. Discuss the ethical issues in this case

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