Ketan Parekh | Ketan Parekh - Stock Market | Sebi says Ketan Parekh still active in market, bars 26 firms

Ketan Parekh was a Mumbai-based stock broker. He hails from a well-to-do Gujarati family involved in share trading, and Ketan was involved in the shares scam of 2000-2001 on the Indian Stock Market.

Ketan Parekh | Ketan Parekh - Stock Market | Sebi says Ketan Parekh still active in market, bars 26 firms

Ketan Parekh | Ketan Parekh - Stock Market | Sebi says Ketan Parekh still active in market, bars 26 firms

Market regulator Securities Exchange Board of India (Sebi) has found that banned stock broker Ketan Parekh is still active in the stock markets and has restrained 26 entities connected to Parekh from trading. CNBC-TV18’s Sajeet Manghat reports.

Sebi has confirmed something that was long doing the rounds in the stock market — that Ketan Parekh is still active. It has unearthed evidence that the stock broker, who was banned from the stock markets for the 2000 scam and famously referred to as KP, is active through clients.

Ketan Parekh, Sebi said, has been routing funds through 26 entities and thorough layers of transaction, has routed his funds in the securities market. “It appears that he (Ketan Parekh) has conveniently used the connected clients at will as its front entities for executing trades desired by him in the securities market,” Sebi said in its order.

The fact came into light after the Income Tax department came out with some observations from sources by which KP paid a loan to one of the entities, amounting to nearly Rs 26 crore. Sebi carried out an investigation in nine scrips, including CAL Refineries, Temptation Foods, Bang Overseas etc and found that he acted in the market through connected entities of clients. Many transactions took place via market deals while some others were via off-market deals, and this was something that surprised the the regulator.

In many cases, the Income Tax department observed that an interest-free loan amount would be passed on to the connected clients without any agreements, which would then be invested in the securities.

Sebi also found that the transactions would happen through a layer of investments by clients and there would be an integration of these funds at the banking system.

The regulator is investigating the transactions and has also said it wants its Enforcement Directorate to investigate the tail of funds that has happened in the transactions.

- moneycontrol.

Companies, when raising money from the stock market, rope in brokers to back them in raising the share price. Ketan formed a network of brokers from smaller exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and used benami, or share purchases, in the name of poor people living in the shanty towns of Mumbai. Ketan rose to fame at the same time as the worldwide dot-com boom (1999-2000) and he relied primarily on the shares of ten companies for his dealings (now known infamously as the K-10 scrips).

[1] Ketan had large borrowings from Global Trust Bank, whose shares he was ramping up so that he could get a good deal at the time of its merger with UTI Bank. He got a Rs 250 crore loan from Global Trust Bank, although Global Trust’s chairman Ramesh Gelli, who was later asked to resign, repeatedly asserted that the amount was less than Rs 100 crore, which was in keeping with the Reserve Bank of India's normal amount. Ketan and his associates obtained another Rs 1,000 crore from the Madhavpura Mercantile Co-operative Bank despite the fact that RBI regulations ruled that the maximum loan a broker could obtain was Rs 15 crore. In addition, Mr Mehta's was involved with Ketan's Business in 1996.

Ketan's modus operandi was to ramp up the shares of select firms in collusion with promoters. Interestingly, around the time when Ketan started taking long positions in his favorite K-10 scrips, the Securities and Exchange Board of India (SEBI) concluded a 3-year old case against Harshad Mehta, who had colluded with the managements of BPL, Sterlite and Videocon to ramp up their shares.

In Ketan's case, SEBI found prima facie evidence of price rigging in the scrips of Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer.

[edit] Discovery and arrest

With the prices of selective shares constantly going up due to his rigging, innocent investors who had bought the shares at high prices, thinking the market as genuine, lost heavily. Soon after the discovery of the scam, the prices of these stocks came down to a fraction of the values at which they were bought, causing even banks to lose large sums of money.

At the time, a group of traders known as the "Bear Cartel" (Shankar Sharma, Anand Rathi, Nirmal Bang) were making money from falling stock prices. Bears sell stocks at high prices and buy back at low prices. Around February end in 2000, this cartel placed sell orders on the K-10 stocks and crushed their inflated prices. All of Ketan's borrowings could not rescue his scrips. The Global Trust Bank and the Madhavpura Cooperative went bust when the money they had lent to Ketan sunk with his K-10 stocks.

The information furnished by the Reserve Bank of India to the Joint Parliamentary Committee (JPC) during the investigation of the scam revealed that financial institutions like Industrial Development Bank of India (IDBI Bank) and Industrial Finance Corporation of India (IFCI) had extended loans of Rs 1,400-odd crore to companies known to be close to Ketan Parekh.

Ketan Parekh was arrested on December 2, 2002 in Kolkata.