The Securities and Exchange Board of India (SEBI) has discovered a front-running scam in the Indian stock market. As part of its initial action, SEBI has banned 22 individuals and entities, including Singapore-based stockbroker Rohit Salgaocar and Indian stockbroker Ketan Parekh, for their sus***ted roles in the scam.
SEBI Bans Ketan Parekh & Rohit Salgaocar For Front-Running Scam
The Securities and Exchange Board of India (SEBI) uncovered a front-running scam in the stock market. In its interim order, SEBI banned 22 individuals and entities, including stockbrokers Ketan Parekh and Singapore-based Rohit Salgaocar, for their alleged involvement in the scam.
Front-running is an ill***l practice where someone trades stocks using private information before it is shared with clients. SEBI found that Parekh and Salgaocar created a scheme to profit unfairly from confidential details of a large client.
SEBI ordered the seizure of ₹66 crore in unlawful gains from the accused, stating, “An amount of ₹65,77,11,547, earned from the violations, will be impounded.”
Ketan Parekh, previously convicted for his role in a 2000 stock market scam, had already been banned from trading for 14 years.
Ketan Parekh Biography
Ketan Parekh, a former stockbroker from Mumbai, was found guilty in 2008 for manipulating the Indian stock market between 1998 and 2001. He inflated the prices of specific stocks, known as K-10 stocks, using borrowed funds, including from Madhavpura Mercantile Co-operative Bank, where he was a director.
SEBI’s investigations revealed that Parekh and his associates rigged the prices of these stocks. As a result, SEBI banned him and related entities from trading for 14 years.
Early Life & Career
Ketan Parekh, a Chartered Accountant, began his career in the late 1980s at NH Securities, a respected brokerage firm. In the 1990s, he worked with Harshad Mehta, a well-known stockbroker, at GrowMore Investments, a firm linked to the 1992 stock market case.
Parekh later focused on stocks in IT, media, and communication, promoting them heavily. Reports of irregularities in his dealings led to closer scrutiny, and he was arrested on March 30, 2001.
Ketan Parekh’s role in the 2001 stock market crash
Ketan Parekh invested in small, lesser-known companies with low market value and increased their prices using circular trading. This involved trading shares between traders and colluding with companies and large investors. Shares of companies like Zee Telefilms rose dramatically, for example, from ₹127 to ₹10,000. These manipulated stocks became known as “K-10” stocks, and Parekh earned the nickname “Pentafour Bull.”
Promoters and industrialists provided funds to Parekh to inflate their share prices. For instance, VisualSoft’s shares increased from ₹625 to ₹8,448, and Sonata Software’s shares rose from ₹90 to ₹2,936. However, in February 2001, a group of brokers, called the bear cartel, targeted K-10 stocks, causing their prices to fall. This led to a payment crisis at the Calcutta Stock Exchange.
On March 1, 2001, after the Union Budget was presented, the BSE Sensex dropped 176 points. The Reserve Bank of India (RBI) investigated suspicious pay orders Parekh used as loan collateral. Facing pressure, Parekh sold his K-10 stocks in bulk after trading hours, triggering a market crash the next day. This caused heavy losses for large investors, including insurance companies and mutual funds.
A 30-member Joint Parliamentary Committee (JPC) found that Parekh used circular trading to manipulate the prices of ten companies, including Global Trust Bank and Madhavpura Mercantile Cooperative Bank, from 1995 to 2001.
Parekh faced multiple convictions. In 1992, he received a one-year sentence for a transaction involving Canara Bank. In 2009, SEBI found other entities trading on his behalf, leading to a ban on 26 entities. In 2014, he was sentenced to two years of rigorous imprisonment by a CBI court for cheating.
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