Arrests in India stocks scandal

The stock exchange nearly went bankrupt

By Subir Bhaumik BBC reporter in Calcutta

Police in the eastern Indian city of Calcutta have arrested six leading stockbrokers for their alleged involvement in a major scam two year ago.

The scandal left the Calcutta Stock Exchange(CSE) nearly bankrupt.

The city's police intelligence chief, Soumen Mitra, says at least two more stockbrokers, who he alleges were heavily involved in the scam, are wanted for questioning.

The bank accounts of those arrested have been frozen.

The six brokers arrested around midnight have been charged with circular trading, a practice common in the Indian stock markets.

Investors lured

Several stock market scandals have hit India in recent years

By buying and selling among themselves the brokers inflate share prices, luring thousands of investors.

Then, with the market at its peak they offload heavily - bringing the market down with them.

As thousands of Calcutta investors sold in panic the redemption cheques issued to them by the brokers bounced.

But the brokers were baled out by the CSE, which reimbursed jilted investors from its settlement guarantee fund.

The payout was close to $25m - a figure that nearly rendered the CSE bankrupt.

Law suits

The CSE's board of directors was soon recast after the scam, and a new-look board pushed for the dues to be recovered from the brokers.

The CSE's executive director, PK Sirkar, told the BBC that the brokers had issued cheques for settlement of their dues and most of them bounced.

So the CSE filed three civil suits against the defaulting brokers and police arrested six of those accused just before midnight.

On Thursday, a court in Calcutta also issued a ruling allowing the stock exchange to take over the properties of three top brokers accused in the scam.

But Mr Sirkar says it has to be ascertained whether the properties are still in the name of the brokers or whether they had been sold off.