Ketan Parekh Scam Final

KETAN PAREKH SCAMWHO IS KETAN PAREKH ?Ketan Parekh [KP] was a chartered accountant by proess!on and used to "ana#e a a"!$ybus!ness% NH Secur!t!es started by h!s atherKetan Parekh&a$so known as the '(o"bay (u$$) was a known broker o *nd!an stock e+chan#eHe had connect!ons w!th "o,!e stars% po$!t!c!ans and e,en $ead!n# !nternat!ona$ entrepreneurs $!ke Austra$!an "ed!a tycoon Kerry PackerParekh ca"e ro" a a"!$y o brokers wh!ch he$ped h!" to create a trad!n# r!n# o h!s own Current$y he has been debarred ro" trad!n#!n the *nd!an stock e+chan#es t!$$ -./0He was con,!cted !n -..1% or !n,o$,e"ent !n the *nd!an stock "arket "an!pu$at!on sca" !n $ate /222&-../ He was a tra!nee o Harshad Mehta The co"pan!es !n wh!ch KP he$d stakes !nc$uded A"!tabh (achchan Corporat!on 3!"!ted 4A(C35% Mukta Arts% T!ps and Pr!t!sh Nandy Co""un!cat!ons6 He a$so had stakes !n H7C3% 8$oba$ Te$esyste"s 48$oba$5% 9ee Te$e:$"s% Crest Co""un!cat!ons% and PentaMed!a 8raph!cs KP se$ected these co"pan!es or !n,est"ent w!th he$p ro" h!s research tea"% wh!ch $!sted h!#h #rowth co"pan!es w!th a s"a$$ cap!ta$ base6 Accord!n# to "ed!a reports% KP took ad,anta#e o $ow $!;u!d!ty !n these stocks% wh!ch e,entua$$y ca"e to be known as the 'K-10' stocksTHE K10 STOCKSAND THE STORY BEGINSA$thou#h KP was a successu$ broker% he d!d not ha,e the "oney to buy $ar#e stakes6 Accord!n# to a report%. "!$$!on%< ?h!$e the 9ee and H7C3 stakes wou$d ha,e cost Rs ->. "!$$!on each6KP borrowed ro" ,ar!ous co"pan!es and banks or th!s purpose6 H!s :nanc!n# "ethods were a!r$y s!"p$e6 He bou#ht shares when they were trad!n# at $ow pr!ces and saw the pr!ces #o up !n the bu$$ "arket wh!$e cont!nuous$y trad!n#6 ?hen the pr!ce was h!#h enou#h% he p$ed#ed the shares w!th banks as co$$atera$ or unds6*t wasn@t poss!b$e w!thout the !n,o$,e"ent o banks6 A s"a$$ Ah"edabad&based bank% Madha,apura Mercant!$e Cooperat!,e (ank 4MMC(5 was KPs "a!n a$$y6MODUS OPERANDIKP buys shares o se$ected co"pan!esAther !n,estors a$so!n,est !n KPstocksPr!ces are Backed up byC!rcu$ar trad!n#(ears Carte$ se$$s the !nCated stocks%Pr!ce reduces(anks and reta!$ !n,estors $ooseWAYS OF FUNDING THE SCAMTHE PAY ORDER ROUTE KP !ssued che;ues drawn on (o* 4(ank o *nd!a5 to MMC(4Madha,apura Mercant!$e Cooperat!,e (ank5% a#a!nst wh!ch MMC( !ssued pay orders6 The pay orders were d!scounted at (o*6 *t was a$$e#ed that MMC( !ssued unds to KP w!thout proper co$$atera$ secur!ty and e,en crossed !ts cap!ta$ "arket e+posure $!"!ts6KP reported$y used h!s (o* accounts to d!scount -D1 pay orders worth about Rs -D b!$$!on between =anuary and March -../6 (o*Es $osses e,entua$$y a"ounted to we$$ abo,e Rs /6- b!$$!on6 The second route was borrow!n# ro" a MMC( branch at Mand,! 4Mu"ba!5% where d!Ferent co"pan!es owned by KP and h!s assoc!ates had accounts6KP used around /G such accounts% e!ther d!rect$y or throu#h other broker :r"s% to obta!n unds6 (orrows ->. crores ro" 8T( 48$oba$ Trust (ank5 and /... crores ro" MMC(6Accord!n# to R(* re#u$at!ons% a broker !s a$$owed a $oan o on$y Rs /> crore 4Rs />. "!$$!on56 There was e,!dence o pr!ce r!##!n# !n the scr!ps o 8$oba$ Trust (ank% 9ee Te$e:$"s %H7C3% 3up!n 3aborator!es% Atek *nosys and Pad"!n! Po$y"er6END OF SCAMH!s "ode o ra!s!n# unds were #o!n# on we$$ on$y t!$$ pr!ces o shares went up*t re,ersed when shares started a$$!n# ro" March -...6 The crash was a resu$t o a$$ at Nat!ona$ Assoc!at!on o Secur!t!es Hea$ers Auto"ated Iuotat!on Syste"4NASHAI5 that saw a a$$ !n K&/. stock as we$$ *n ne+t - "onths% sense+ dec$!ned by -JK and K&/. stock dec$!ned by G0K6 *n May -...% the "arket p!cked up back and the pr!ces o K&/. rose a#a!n6 The pr!ces o stock doub$ed $!ke H7C3 doub$ed ro" Rs 02. to Rs /J>J by =u$y(y Hece"ber -...% the NASHAI e$$ back a#a!n and the K/. stocks went down as the pr!ces o stock e$$ #$oba$$y6KP aced $!;u!d!ty prob$e"s6The CSE had pay"ent cr!ses and was a setback or KP because o o$$ow!n# reasons & Stocks he$d by KP and h!s broker were reduced to G&0 bn ro" /-bn6S!tuat!on worsened when KPs bad$a pay"ent was not honored6 0. CSE brokers a$on# w!th top J brokers "ade deau$t6 (y "!d March the ,a$ue o shares went to -6>&Jbn6KPs brokers started pressur!n# h!" or pay"ent6SE(* tr!cked the re#u$atory nor"s and se,era$ other ru$es were ra"ed 7!na$$y KP was arrested6IMPACTThe Sense+ $ost o,er 0.. po!nts and "ore than >.. o the /JGD act!,e$y traded sharesKP and other traders were banned ro" trad!n# or /0 years Short se$$!n# was banned or G "onths6 (ad$a syste" was banned (roker contro$ o,er Stock E+chan#e was de"o$!shed(o"bay Stock E+chan#e 4(SE5 Pres!dent Anand Rath! res!#ned6 E!#ht peop$e were reported to ha,e co""!tted su!c!de 6Hundreds o !n,estors and two banks were dr!,en to the br!nk o bankruptcyKP re$eased on ba!$ on May -../&&A$$ Ketan Parekh had to say was * "ade "!stakes6The Reta!$ !n,estors were the worst h!t&S(*% (A*% PN(% MMC( had to suFer hu#e $osses6 STEPS TAKEN BY SEBI AFTER SCAMSE(* $aunched !""ed!ate !n,est!#at!on on the sca"6*t suspended a$$ the broker "e"ber d!rectors o (SE@s #o,ern!n# board6SE(* a$so banned trad!n# by a$$ stock e+chan#e pres!dents% ,!ce pres!dents and treasurers6SE(* banned naked short sa$es6 SE(* a$$owed banks or co$$atera$!Led $end!n# on$y throu#h (SE and NSEThe $!"!t o app$!cat!on o the add!t!ona$ ,o$at!$!ty "ar#!ns was $owered ro" 1.K to G.KTo re,!,e the "arkets SE(* !"posed restr!ct!on on short sa$es6R(* started !nspect!n# accounts and sub&accounts tw!ce a year !n sp!te o once !n two year6