Ketan Parekh Scam of 2001 “Hidden Facts”
Ketan Parekh Scam of 2001 “Hidden Facts”
After Harshad Mehta Scam 9 years later in 2001, another scam stormed the Indian stock markets. The mastermind behind the scam of 2001 is Ketan Parekh, therefore, it was popularly known as the Ketan Parekh Scam of 2001 and reports also suggest the presence of Ketan Parekh in scam 1992.
Who is Ketan Parekh?
Ketan Parekh was the architect of the 2001 stock market scam. Before the scam surfaced, he was popularly known as the “One Man Army” or “Pentafour Bull” of the Indian Stock market as the stocks he invested in used to shoot up and people used to blindly follow his calls. During the period of the scam, Ketan Parekh even generated a 200% annual return on some of the stocks he manipulated.
Ketan Parekh is a Chartered Accountant by qualification and he started his professional career by handling his family brokerage firm namely NH Securities. Later he followed the footsteps of his mentor Harshad Mehta and hence joined him. Parekh learned the tricks and trades of the stock market from his mentor Harshad Mehta and was also a promoter in one of Harshad Mehta and Ashwin Mehta companies.
Ketan Parekh scam amount
According to the reports by SFIO (Serious Fraud Investigation Officer), Ketan Parekh scam amount was worth around 40,000 crores. At his peak, Ketan Parekh was friends and business partner with famous media mogul Kerry Packer to start a venture capital firm where they would fund budding Indian start-ups.
Ketan Parekh Early life and Family
Ketan Parekh’s age is 60 years and was born in the year 1963 in an upper middle-class family which consisted of Chartered Accountants and stockbrokers. Observing his father dealing in stock market, he was charmed by the world of stock market.
After completing his CA, he joined his family business of stock brokerage and further went on to join Harshad Mehta’s company GrowMore. Ketan Parekh’s wife is Mamta Parekh and the couple has two daughters.
What is the Role of Ketan Parekh in scam 1992?
As sources mention There is the role of Ketan Parekh in scam 1992, but it was not mentioned in the web series.
Ketan Parekh was influenced by the rise of Harshad Mehta and joined his company GrowMore in the early 90s. Although when the 1992 scam was uncovered, Ketan Parekh managed to escape but his role in the scam came to the fore in 2001 when his own scam was uncovered.
Ketan was convicted in 2008 and he was sentenced to a year of imprisonment for his role in the 1992 scam. He was found guilty of siphoning public funds worth Rs.48 crore from a branch of Canara Bank during the 1992 scam.
How Ketan Parekh Pump & Dump K-10 stocks?
Ketan Parekh not only used the same pump-and-dump scheme to earn massive profits but altered the strategy to suit his method. He decided to target institutional investors as they invest heavily in stock markets and are easier to control in comparison to retail investors.
Ketan Parekh was bullish on the Information, Communication, and Entertainment (ICE) sector, especially during the Dot-Com boom of 1999-2000. He invested in the stocks of this sector and the majority of his predictions were spot on because of this the prices of these stocks skyrocketed.
Parekh with his accurate predictions was able to convince the institutional investors to follow the fad and Ketan Parekh even generated 200% annual returns on some of the stocks he manipulated. These stocks were popularly known as K-10 stocks and these stocks were Pentamedia Graphics, HFCL, GTL, Silverline Technologies, Ranbaxy, Zee Telefilms, Global Trust Bank, DSQ Software, Aftek Infosys and SSI.
How Ketan Parekh executed the scam?
Parekh’s methods of raising funds to pump up the stocks were also a bit different as he used both public funds and capital from influential corporates to shoot their prices. Parekh was on the board of Global Trust Bank and MMCB and he used clout in the banks to receive huge loans against his shares.
In those days according to RBI guidelines, banks could give only up to 15 crores as loans to a stockbroker but Parekh bribed officials of their bank to receive loans of around 800 crores and 100 crores from MMCB and GTB respectively.
He also defrauded MMCB to issue a payment order worth Rs.137 crore to one of his companies. A pay is a financial instrument issued by a bank that orders another bank to pay a specified amount to the third party on the behalf of the customer of the issuing bank. But in reality, he never deposited such amount in MMCB.
Parekh also took huge sums of money from promoters of companies to shoot up prices of their stock as it will help increase the net worth of those traders whose money is invested in the company and will also help Parekh book profits after squaring his position after shooting up the prices.
How Ketan Parekh used Circular Trading?
Ketan Parekh realized that institutional investors only invest in stocks that have high trading volumes and have media attention. He used to the strategy of circular trading and his huge funds which he accumulated from banks and corporates.
Circular trading is a strategy where multiple brokers would buy and sell specific shares in similar quantities which matches the trade thus, forming a cycle. By using this strategy, Parekh managed to show high liquidity in the stocks he wanted to manipulate. At the same time, he primarily targeted IT stocks during the IT boom which helped it to gain media attention.
Thus, by using the above strategies, Parekh manipulated the stocks and enticed institutional investors in invest in K-10 stocks. The Ketan Parekh scam started uncovering when Bank of Baroda’s Mumbai branch accused Ketan Parekh that he defrauded the bank to the tune of 137 crore and when Sucheta Dalal of the Times of India published a report on the scam then it became the talk of the town.
How Ketan Parekh Scam Expose after Budget 2001?
After the 2001 budget, the Sensex crashed by 176 points which propelled the NDA government to conduct an investigation into the market crash and Ketan Parekh being a prominent name in the stock market, his transactions came under scrutiny.
Upon investigation, RBI found Parekh’s pay orders to be suspicious and when all of this was happening a payment crisis occurred in the Calcutta Stock Exchange, when the bear cartel started dumping K-10 stocks that resulted in other brokers also dumping K-10 stocks who were holding it in his name. All of this thus resulted in Sensex tumbling 146 points further.
Repercussions of the Ketan Parekh Scam expose
The whole unveiling of the scam resulted in the massive erosion of Ketan Parekh’s wealth leading him and his followers to bankruptcy. Ketan Parekh was arrested on 31st March 2001 for defrauding the Bank of India of 137 crores.
He was also found guilty of insider trading and thus was banned from trading until 2017.
In the year 2009, SEBI found him to be using a front company to trade in the stock market and carrying out illegal activities which resulted in nearly 26 entities getting banned from trading.
A fast-track court sentenced three-year imprisonment in 2018 but he was later given bail by the Bombay High court.
QUE 1. Is Ketan Parekh Still Alive?
Ans. According to the report Yes, Ketan Parekh is Still alive. and shifted to London.
QUE 2. Where is Ketan Parekh Now?
Ans. Know one exactly know where is Ketan Parekh Now but according to reports he moved to London for his daughter's treatment as she is suffering from post-viral encephalitis since she was one and a half months old.