Ketan Parekh

Last updated

Ketan Parekh
EducationChartered Accountant
Occupations

Ketan Parekh is a former stockbroker from Mumbai, who was convicted in 2008 for involvement in the Indian stock market manipulation scam that occurred from late 1998 to 2001. [1] During this period, Parekh artificially rigged prices of certain chosen securities (informally referred to as K-10 stocks), using large sums of money borrowed from banks including the Madhavpura Mercantile Co-operative Bank, of which he himself was a director. [2]

Contents

After many investigations by the Securities and Exchange Board of India, Parekh and his front entities were found guilty of rigging share prices of ten companies called K-10 and SEBI had banned Parekh and associated firms from trading in the market for 14 years. [3] [4] [5] He is known as notorious stock broker by CSE. [6]

Early career

Parekh, after becoming a Chartered Accountant, [7] started his career in the late 1980s at Narbheram Harakchand Securities (NH Securities), a reputed institutional brokerage firm. In the 90s, he came in contact with Harshad Mehta, a well known stock broker and subsequently joined Mehta's firm GrowMore investments, a firm that Mehta had set up and which was involved in the 1992 Indian stock market scam. [8] [9] [10] Though one of the accused in some of the scams that invested heavily in stocks related to IT, media and communication and propagated them. As cover stories emerged in the financial media of his malpractices related to the stock market, scrutiny shifted to his activities leading to his arrest on 30 March 2001. [11]

Role in 2001 stock market crash

Ketan Parekh purchased large stakes in less known small market capitalization companies, and jacked up their prices through circular trading with other traders, and collusion with these companies and large institutional investors. This resulted in steep hikes in share prices (for example: shares of Zee telefilms zoomed up from Rs 127 to a price of Rs 10,000. [12] This set of ten stocks was colloquially referred to as "K-10" stocks and Parekh was playfully referred to as "Pentafour Bull". [11]

It later transpired that promoters and industrialists often gave Parekh funds to artificially rig up their share prices. Thus in just a few months, scrips of virtually unknown companies like Visualsoft rose from ₹625 to ₹8,448 per share and Sonata Software rose from ₹90 to ₹2,936.60. However, the bear cartel in Bombay stock exchange started to hammer his K-10 stocks in February 2001, leading them to fall and precipitating a payment crisis in Calcutta. [11] [13]

On 1 March 2001, just after the Indian Union Budget had been presented, the BSE Sensex crashed 176 points, prompting the then NDA government to set up an inquiry into the market reaction. Subsequently the RBI refused to clear pay orders (POs) that had been given by Parekh as collateral for loans to BOI (Bank of India), as they found them to be suspicious. The RBI commenced an investigation against Parekh. Around the same time, a bear cartel of brokers in Mumbai opposed to Parekh tried to dump their shares of K-10 stocks. Panicking, Parekh sold off his entire ownership of the so called K-10 stocks that he had successfully jacked up over the past two years, especially those of two entities - GTB bank and MMCB bank. He carried out this large scale dump in the evening, after regular trading hours, from 5 PM to midnight at the Calcutta Stock Exchange. This resulted in a stock market crash the next day, resulting in large scale losses for large institutional investors, including insurance companies and mutual funds. [14]

A 30 member Joint Parliamentary Committee (JPC) investigation ensued which found that Parekh had been involved in circular trading throughout the time period from and with a variety of companies, including Global Trust Bank (GTB) and Madhavpura Mercantile Cooperative Bank (MMCB). [15] The JPC found him to have played a major role in rigging the prices of a set of ten Indian companies, from 1995 up to 2001. [16]

This resulted in Parekh's first conviction, which carried a one-year sentence, coming as a result of a transaction he conducted involving a unit of Canara Bank in 1992. [17]

Though Parekh was subsequently barred from stock trading, the Securities and Exchange Board of India alleged in 2009 that a variety of companies and other actors were trading on behalf of Parekh. An investigation ensued and 26 entities were banned from trading as a result of that investigation. [10] In March 2014 he was convicted by a special CBI court in Bombay for cheating and sentenced to two years rigorous imprisonment. [18] [19]

See also

Related Research Articles

<span class="mw-page-title-main">Stock market</span> Place where stocks are traded

A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock exchange as well as stock that is only traded privately, such as shares of private companies that are sold to investors through equity crowdfunding platforms. Investments are usually made with an investment strategy in mind.

<span class="mw-page-title-main">Securities and Exchange Board of India</span> Regulatory body for securities in India

The Securities and Exchange Board of India (SEBI) is the regulatory body for securities and commodity market in India under the administrative domain of Ministry of Finance within the Government of India. It was established on 12 April 1988 as an executive body and was given statutory powers on 30 January 1992 through the SEBI Act, 1992.

<span class="mw-page-title-main">Bombay Stock Exchange</span> Indian stock exchange in Mumbai

BSE Limited, also known as the Bombay Stock Exchange (BSE), is an Indian stock exchange which is located on Dalal Street, known as the Wall Street of Mumbai, in turn described as the New York of India. Established in 1875 by cotton merchant Premchand Roychand, it is the oldest stock exchange in Asia, and also the tenth oldest in the world. The BSE is the world's 7th largest stock exchange with a market capitalization exceeding US$5 trillion as of May 2024.

<span class="mw-page-title-main">National Stock Exchange of India</span> Indian securities marketplace

National Stock Exchange of India Limited (NSE) is one of the leading stock exchanges in India, based in Mumbai. NSE is under the ownership of various financial institutions such as banks and insurance companies. It is the world's largest derivatives exchange by number of contracts traded and the third largest in cash equities by number of trades for the calendar year 2022. It is the 8th largest stock exchange in the world by total market capitalization, as of May 2024. NSE's flagship index, the NIFTY 50, is a 50 stock index that is used extensively by investors in India and around the world as a barometer of the Indian capital market. The NIFTY 50 index was launched in 1996 by NSE.

<span class="mw-page-title-main">Harshad Mehta</span> Indian stockbroker and businessman (1954–2001)

Harshad Shantilal Mehta was an Indian stockbroker and a convicted fraudster. Mehta's involvement in the 1992 Indian securities scam made him infamous as a market manipulator.

<span class="mw-page-title-main">Colombo Stock Exchange</span> Main stock exchange of Sri Lanka, located in Colombo

The Colombo Stock Exchange (CSE) is the main stock exchange in Sri Lanka that utilizes an electronic trading platform. The CSE headquarters have been located at the World Trade Center (Colombo) Towers in Colombo since 1995, and it has regional branches in Kandy, Jaffna, Negombo, Matara, Kurunegala, Anuradhapura and Ratnapura. The CSE trades 296 companies representing 20 business sectors, as of 25 January 2021, with a combined market capitalization of 3,699 billion Sri Lankan rupees.

<span class="mw-page-title-main">Sucheta Dalal</span> Indian journalist

Sucheta Dalal is an Indian business journalist and author. She has been a journalist for over two decades and was awarded a Padma Shri for journalism in 2006. She was the Financial Editor for the Times of India until 1998 when she joined the Indian Express group as a Consulting Editor, leaving in 2008. She is known for exposing the 1992 stock market scam propagated by Harshad Mehta.

Cochin Stock Exchange was an Indian stock exchange in Kochi, Kerala fully owned by Government of India. It was incorporated in 1978. At its peak, it had almost 500 Indian companies listed, and with a daily turnover of ₹70–₹100 crore, it was the fourth largest exchange in India.

<span class="mw-page-title-main">Market manipulation</span> Deliberate attempt to interfere with and subvert the free market

In economics and finance, market manipulation is a type of market abuse where there is a deliberate attempt to interfere with the free and fair operation of the market; the most blatant of cases involve creating false or misleading appearances with respect to the price of, or market for, a product, security or commodity.

<span class="mw-page-title-main">Bangladesh Securities and Exchange Commission</span> Government regulatory body overseeing the stock market

The Bangladesh Securities and Exchange Commission (BSEC) is the regulator of the capital market of Bangladesh, comprising Dhaka Stock Exchange (DSE) and Chittagong Stock Exchange (CSE). The commission is a statutory body and attached to the Ministry of Finance.

The Satyam Computer Services scandal was India's largest corporate fraud until 2010. The founder and directors of India-based outsourcing company Satyam Computer Services, falsified the accounts, inflated the share price, and stole large sums from the company. Much of this was invested in property. The swindle was discovered in late 2008 when the Hyderabad property market collapsed, leaving a trail back to Satyam. The scandal was brought to light in 2009 when chairman Byrraju Ramalinga Raju confessed that the company's accounts had been falsified.

<span class="mw-page-title-main">Motilal Oswal Financial Services</span> Indian diversified financial services firm

Motilal Oswal Financial Services Limited is an Indian financial services company offering a range of financial products and services. The company was founded by Motilal Oswal and Happy Singh in 1987.

IIFL Finance Limited d/b/a IIFL and India Infoline Finance Limited, is an Indian diversified financial services company headquartered in Mumbai. The organisation was founded by Nirmal Jain. IIFL and its group companies are backed by Canadian investor Prem Watsa, private equity firm General Atlantic and CDC Group, the UK Government's private equity arm. IIFL is ranked among the top seven financial conglomerates in India and as the top independent financial services firm in India in terms of market capitalisation. Nirmal Jain is the chairman of the group, while R Venkataraman is the group managing director and co-promoter.

<span class="mw-page-title-main">MS Shoes</span>

MS Shoes East Ltd. is a company established in Delhi, India on 17 March 1986 The main object of the company was to take over running business of exports in the name of Shoes East Propriety. It attracted large investments before collapsing in February 1995. The Bombay Stock Exchange closed for three days after the crash.

National Spot Exchange Limited (NSEL) case relates to a payment default at the National Spot Exchange Limited that occurred in 2013 involving Financial Technologies India Ltd, when a payment default took place after a commodities market regulator, the Forward Markets Commission (FMC), directed NSEL to stop launching contracts. This led to the closure of the Exchange in July 2013.

Madhavpura Mercantile Cooperative Bank (MMCB) was a Gujarat-based interstate cooperative bank that became defunct and lost its licence after it was unable to pay back the money it owed public depositors. Reserve Bank of India cancelled its licence in June 2012 under section 22 of the Banking regulations Act, 1949.

Since the beginning of the Bombay stock exchange, stock markets in India, particularly the Bombay Stock Exchange and National Stock Exchange of India have seen a number of booms as well as crashes.

The NSE co-location scam relates to the market manipulation at the National Stock Exchange of India, India's leading stock exchange. Allegedly select players obtained market price information ahead of the rest of the market, enabling them to front run the rest of the market, possibly breaching the NSE's purpose of demutualisation exchange governance and its robust transparency-based mechanism. The alleged connivance of insiders by rigging NSE's algo-trading and use of co-located servers ensured substantial profits to a set of brokers. This widespread market fraud came to light when markets' regulator, the Securities and Exchange Board of India (SEBI), received the first anonymous complaint through a whistle-blower's letter in January 2015. The whistle-blower alleged that trading members were able to capitalise on advance knowledge by colluding with some exchange officials. The overall default amount through NSE's high-frequency trading (HFT) is estimated to be ₹500 billion over five years.

Circular trading is a type of securities fraud that can take place in stock markets, causing price manipulation and often related to pump and dump schemes. Circular trading occurs when identical buy and sell orders are entered at the same time with the same number of shares and the same price. As a result, there is no change in ownership of shares, but there is the appearance of an increased trade volume. Circular trading can be achieved by several parties colluding to achieve the fraudulent outcome. This is not to be confused with wash trading, which is where the same outcome is achieved but occurs through the actions of one investor, rather than a group.

The 1992 Indian stock market scam was a market manipulation carried out by Harshad Shantilal Mehta with other bankers and politicians on the Bombay Stock Exchange. The scam caused significant disruption to the stock market of India, defrauding investors of over ten million USD.

References

  1. ↑ Dalal, Sucheta. "SEBI Discovers Ketan Parekh The tahmid (18 June) 2009)". www.suchetadalal.com. Sucheta Dalal. Retrieved 30 January 2018.
  2. ↑ Dalal, Sucheta (13 March 2001). "Ketan Parekh: Delusions of invincibility?". Rediff. Retrieved 30 January 2018.
  3. ↑ Narayan, Khushboo (8 February 2010). "Sebi settles HFCL share price rigging case with consent order". mint.
  4. ↑ "Scam Of 2000". The Financial Express. 29 November 2002.
  5. ↑ "Action against Harshad Mehta, Videocon, BPL and Sterlite (Press release 19 April 2001)". www.sebi.gov.in. SEBI (Securities and exchange board of India). Retrieved 30 January 2018.
  6. ↑ "CSE-India". www.cse-india.com. Retrieved 7 July 2024.
  7. ↑ "2001-Ketan Parekh scam: Stock and bull story". India Today. 18 December 2009. Retrieved 10 October 2020.
  8. ↑ "The securities scam of 1992 - CBI Archives". www.cbi.gov.in. CBI (Central Bureau of Investigation), India. Retrieved 22 May 2018.
  9. ↑ "India court gives Ketan Parekh 1yr prison in 1992 scam". Reuters . 1 April 2008. Retrieved 7 May 2010.
  10. 1 2 "SEBI finds Ketan Parekh funds in markets, seeks ED probe". The Hindu . 4 June 2009. Archived from the original on 17 January 2011. Retrieved 7 May 2010.
  11. 1 2 3 "2001-Ketan Parekh scam: Stock and bull story". India Today. 18 March 2009. Retrieved 30 January 2018.
  12. ↑ Chakraborti, Chiranjeevi (8 July 2016). "Remember Ketan Parekh? Some KP10 stocks still doubled investors' wealth". Economic Times. Retrieved 11 January 2018.
  13. ↑ Report - Joint committee on stock market scam and matters relating thereto (as tabled at the thirteenth Lok Sabha) (PDF). New Delhi: Government of India. 19 December 2002. Retrieved 24 April 2018.
  14. ↑ "Ketan Parekh still 'active' in market, ramping up stocks: IB report". Economic Times. 2 December 2010. Retrieved 11 January 2018.
  15. ↑ "Sebi settles HFCL share price rigging case with consent order". livemint.com. 8 February 2010. Retrieved 27 May 2011.
  16. ↑ JPC Report on the 2001 Indian stock market scam (Ketan Parekh scam) tabled in the 13th Lok Sabha (PDF) (1 ed.). New Delhi: Government of India. 19 December 2002. Retrieved 11 January 2018.
  17. ↑ "India court gives Ketan Parekh 1yr prison in 1992 scam". Reuters . 1 April 2008. Retrieved 7 May 2010.
  18. ↑ "Stock broker Ketan Parekh gets 2 yrs' RI". The Statesman. Archived from the original on 4 March 2014. Retrieved 4 March 2014.
  19. ↑ "Ketan Parekh sentenced to 2 years RI by CBI court". Financial Express. 12 June 2012. Retrieved 4 March 2014.
  20. ↑ "CSE-India". www.cse-india.com. Retrieved 6 July 2024.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.