Ketan Parekh Scam – The Infamous Stock Market Fraud! |

By Trader Pit

July 9, 2021


Ketan Parekh is an Indian stockbroker who was accused of misappropriating money, and ultimately convicted by the Indian Supreme Court of inducing investors into buying shares of publicly traded companies and misappropriating their money. He was imprisoned in the Andaman and Nicobar Islands penal colony for 10 years, and sentenced to another 10 years. He was released in 2015.

Ketan Parekh is a prominent Indian businessman and entrepreneur. He was also a media personality on CNBC-TV18 and Zee Business, and the host of Ketan Parekh’s CNBC-TV18 Market Hour. He was accused of being involved in a $400 million stock market scam.

Clarification on how the Ketan Parekh scam was run: One of the biggest scams in the stock market, which was not only visible to stock investors but also to the Securities and Exchange Board of India and other regulators, was the Ketan Parekh scandal. The market scam was run so that he could make several times his annual profit on the stocks he manipulated.

Ketan Parekh was a god to many investors because he created the illusion that everything he touched turned into gold and whatever he wished, the market seemed to deliver. In just two years, Ketan has scammed so many investors, banks and stock markets that he has become a role model for many today.

The stock market has the power to make some people rich in seconds and deprive others of their money. On the one hand, there are examples of successful stock market traders, such as Warren Buffett, Carl Icahn and George Soros, who became multimillionaires by investing in the stock market. And on the other hand, we have Harshad Mehta and Ketan Parekh who not only controlled the stock markets but were also convicted of economic crimes.

Let’s see in detail what Ketan Parekh’s scam was, how he managed to scam investors and shake the stock markets, what his next scams were and how he was caught.

Ketan Parekh – History and foundation

Ketan Parekh, who was known as Bombay Bull in 1999-2000, was a disciple of Harshad Mehta (who was also involved in another scam that rocked the Indian stock market). A consultant by trade in California, Ketan began his career in the late 1980s running the family business NH Securities, a securities brokerage firm founded by his father. This has given him a good understanding of stock market trends and investor attitudes.

During its heyday, the stock market literally blindly followed every move as it used stock prices to gain investor confidence. Moreover, his close connections with many Bollywood celebrities, political parties and businessmen have put him in touch with Kerry Packer, Australia’s leading media entrepreneur. Kerry and Ketan have partnered to create a $250 million venture capital firm, KPV Venture, to invest in new startups.

How the Ketana Parekh scam was carried out

Ketan Parekh was a big supporter of the ICE sector – information, communication and entertainment – and this was the time, in 1999 and 2000, when the dot-com boom had just begun. This allowed him to prove that his predictions were true for many other investors. Besides, many investment companies, foreign companies and banks and businessmen of listed companies have placed their money under his management as Ketan Parekh managed the stock market in 1999-2000.

Ketan Parekh used Kolkata Stock Exchange for his trading because this exchange did not have strict and fundamental rules. He abused such an exchange and also contacted many other brokers who traded in his name and gave commissions. With this huge amount of money he bought 20-30% of the shares of some lesser known companies, and suddenly the share prices of these companies skyrocketed and became the biggest sensation in town. Once the price reached a certain level, he quietly went out, sold the shares and made immeasurable profits.

Not only did he manipulate stock prices, but he also gambled with the banks to get money to cheat the stock prices and dominate the market. He first bought shares in a commercial bank in Madhavpur to gain the confidence of the bank when he asked for a loan in the form of money orders.

A payment order is an instrument similar to a cheque, but issued by the bank when the customer makes a small advance payment. When he succeeded in cheating MMCB’s share price, he approached other financial institutions, including HCFL and UTI, for money orders. His loan amounted to 750 million rupees.

He has put together a portfolio under the name K-10, which consists of the top ten hits selected by Ketan Parekh himself. These include Aftek Infosys, Zee Telefilms, Pentamedia Graphics, Mukta Arts, etc. He was interested in low profile, small market cap and low liquidity companies. This allowed them to manipulate the prices of these companies by using the pump and dump formula. He is also alleged to have engaged in insider trading by deliberately influencing the share prices of certain companies that bribed him to do so, and to have taken advantage of rising share prices to exploit the minds of investors.

READ MORE:

Harshad Mehta’s scam – how did one man scam the entire Dalal Street?

How did everything Ketan Parekh touched turn to gold?

  • At the time, the ICE sector was booming and Ketan invested heavily in these industries, winning the trust of investors.
  • He traded on the Calcutta Stock Exchange, which itself had no strict rules. Therefore, there was no one to monitor his movements.
  • He bought shares of little-known companies when they were trading at low prices, and formed a team with other traders to regularly buy and sell shares of these companies, causing prices to suddenly rise.
  • His financing method, which involved buying shares and getting warrants, and then pledging them when prices rose, also allowed him to take advantage of a bull market for shares.
  • Many investors were of the view that the negligent response of the SEBI and the rules, which could have detected unusual price movements in the market, contributed to the scam causing them further losses.
  • His connections with celebrities, political and religious leaders also helped him get most of his money from big companies and businessmen.

Ketana Parekh accused of fraud and disclosure

SEBI and RBI started investigating the matter after the market fell by a whopping 176 points in a single day in 2001, just one day after the budget was announced. Ketan Parekh is accused of insider trading, circular crime, pump and dump and making false statements to get loans from banks.

Ketan Parekh was found guilty of scamming the Indian stock market and was banned from trading on the Bombay Stock Exchange (BSE) for 15 years, until 2017. He was also sentenced to one year in prison for passing on transactions and insider trading to numerous banks.

However, the SEBI launched an investigation and found that despite the ban on trading, he was using his network and getting some companies to trade on his behalf. Later, in 2008, many of those companies were tracked down by the SEBI and were also banned from trading.

In 2014, the CBI found that he was doing dishonest work and sentenced him to two years of rigorous imprisonment with a fine of up to Rs. 50,000. He also took money out of the country. SEBI reported in April 2001 that it owed Rs 12.73 billion to large corporates, Rs 8.88 billion to MMCB and Rs 2.66 billion to Global Trust Bank. The amount is said to have reached as much as 400 billion rupees by 2006.

 

Short note
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He also allegedly used foreign corporate structures and sub-accounts of foreign institutional investors to acquire shares in various companies and transfer money out of the country. To sum up the allegations of fraud against Ketan Parekh: He was involved in bank fraud by distorting facts, falsifying accounts, inflating stock prices and profiting from investors’ decisions, mismanaging public funds, bribing corporate executives and engaging in insider trading.

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Final thoughts

In this article, we have described how Ketan Parekh’s unscrupulous actions could lead investors to make decisions. Not only the stock markets and investors, but Ketan Parekh also bluffed the banks. All this led to huge debts, and once in 2001 it became a historic event – the biggest fraud in the Indian stock market.

An investigation is ongoing to determine how many other companies are still on the exchange after he and others were banned from trading.

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About the author

Trader Pit

A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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