Ketan Parekh

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] As a result, he was banned from trading in the Indian stock exchanges till 2017.[3]

Early career

Parekh, after becoming a Chartered Accountant,[4] 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.[5][6][7] Though one of the accused in some of the scams that Growmore was involved in, Parekh was never convicted in them.[8] Unlike Mehta, Parekh ensured that he remained low key, with a simple lifestyle thus presenting a humble "feet-on-the-ground" demeanor even when interviewed by journalists like Sucheta Dalal, as she related in her 2003 article in Rediff.[9]

However, this started to change in 1999-2000 as Parekh got closer to celebrities. Parekh began cultivating friendships with people in Bollywood including Amitabh Bachchan and the diamond merchant Bharat Shah, thus coming into the media's eye and limelight. This led to an investigative story on him which was first published on 25 August 2000 covering a millennial bash that he had given at his palatial bungalow at Mandwa (near Mumbai), which was attended by Mumbai's industrialists, media personalities as well as some high profile individuals. This was followed by his acquiring expensive luxury cars including a Cadillac, throwing regular high profile parties that were eagerly lapped up by the tabloid media. His pictures began to appear in newspapers with his comments on matters related to finance and the budget. The media covered every incident in his life including that of him forming KVP Ventures (a collaboration with Vinay Maloo and the Australian magnate Kerry Packer), forming an investment bank (Triumph international) and turning the loss making ABCL into a profitable firm by arranging funding from HFCL.[10] He 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.[9]

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 ₹127 to a price of ₹10,000.[11] This set of ten stocks was colloquially referred to as "K-10" stocks and Parekh was playfully referred to as "Pentafour".[9]

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 Kolkata.[9][12]

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.[13]

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).[14] 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.[15]

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.[16]

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.[7] In March 2014 he was convicted by a special CBI court in Mumbai for cheating and sentenced to two years rigorous imprisonment.[17][18]

See also

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. "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.
  4. "2001-Ketan Parekh scam: Stock and bull story". India Today. 18 December 2009. Retrieved 10 October 2020.
  5. "The securities scam of 1992 - CBI Archives". www.cbi.gov.in. CBI (Central Bureau of Investigation), India. Retrieved 22 May 2018.
  6. "India court gives Ketan Parekh 1yr prison in 1992 scam". Reuters. 1 April 2008. Retrieved 7 May 2010.
  7. "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.
  8. "Accused No.10 - case 3 of 1996, CBI v/s Canbank Mutual Fund". www.rediff.com. rediff / CBI. Retrieved 30 January 2018.
  9. "2001-Ketan Parekh scam: Stock and bull story". India Today. 18 March 2009. Retrieved 30 January 2018.
  10. https://www.thehindubusinessline.com/2001/12/30/stories/14301804.htm
  11. Chakraborti, Chiranjeevi (8 July 2016). "Remember Ketan Parekh? Some KP10 stocks still doubled investors' wealth". Economic Times. Retrieved 11 January 2018.
  12. 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.
  13. "Ketan Parekh still 'active' in market, ramping up stocks: IB report". Economic Times. 2 December 2010. Retrieved 11 January 2018.
  14. "Sebi settles HFCL share price rigging case with consent order". livemint.com. 8 February 2010. Retrieved 27 May 2011.
  15. 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.
  16. "India court gives Ketan Parekh 1yr prison in 1992 scam". Reuters. 1 April 2008. Retrieved 7 May 2010.
  17. "Stock broker Ketan Parekh gets 2 yrs' RI". The Statesman. Archived from the original on 4 March 2014. Retrieved 4 March 2014.
  18. "Ketan Parekh sentenced to 2 years RI by CBI court". Financial Express. 12 June 2012. Retrieved 4 March 2014.
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