In this article Ketan Parekh scam is explained clearly. His techniques and tactics are also described. Let’s begin: Ketan Parekh was a chartered accountant and he was continuing his family business of stock broking. If you read the ‘Harshad Mehta Scam(scam 1992,Big Bull Story)‘ before it then you obviously read it that ketan parekh joined as a trainee to harshad mehta. Ketan parkeh was continuing his scam with the two main techniques and they are ‘pump and dump’ and ‘circular trading’.
Ketan Parekh Scam Explanation। Second Biggest Scam after Harshad Mehta Scam।
What is pump and dump scheme?
Pump and dump scheme is a fraud scheme where scam operators buy a large number of shares of any stock and try to attract the investors giving them wrong information. Many investors buy the stock falling on the operator’s trap or believing the wrong information. As a result the demand of this share is growing and hence the share price is also growing. Other investors buy the same share because of the growing of stock’s demand and price. As a result the share price touches a high level means share price is pump. When the share price reaches a good position scam operators dump or sell their all shares of this stock and they become profitable. After selling the stocks when operators stop to promote the stock or stop to give the wrong information then the share price falls because the stock is overvalued and for the wrong informations that scam operators spread into investors. As a result the investors who invest in this stock they face a huge lose.
Ketan Parekh would buy a large stake of any stock at first and then he started to manipulate the stock. Basically there is two types of investors in stock market and they are:
- Retail Investors.
- Institutional Investors.
Retail investors are individuals who buy the share for their personal account like you and i. Institutional investors are organisation who invest for their investment portfolio or for people like mutual funds,insurance companies,hedge funds etc. Such as you read in harshad mehta scam that he tried to attract the retail investors for his scam. But here ketan parekh tried to attract the institutional investors because they invest in stock market with a large capital. Ketan knew well that how and in what way he could attract the institutional investors. Because he was a institutional stock broker. Using different stratagem to attract the institutional investors he started to manipulate the stocks. Many investors(basically institutional investors) give more importance to liquidity. For this ketan started circular trading. Stock’s volume can be increased using circular trading. On a particular day or particular time that much stocks are traded is called the volume of this stock. On that day if the trade number of any stock is growing then the volume of the stock is increasing. In circular trading operators trade the stock between themselves. First operator sell the stock to second operator and the second operator sell the stock to third operator and the third operator sell to first operator. In this way circular trading is going on and the stocks are rotated between them and the volume of this stock is growing. In circular trading operators decides at first how much,when and in what price shares are traded. And then first and second operator placed sell and buy order at same time and quantity and in same price. Means they place exactly matching orders. Because of this stocks are traded between operators and the volume of the stock is increasing.
To do circular trading ketan parekh rotated all shares between his different companies. Ketan mainly manipulate 10 stocks that are called K-10 stocks. For high volume stocks were seen highly actively traded. It was seemed that interest of investors were grown for this stocks. Investing a huge amount ketan was increasing the share price. For this investors took participate on this. Ketan had a good relation with many institutional investors. So they started to invest on the k-10 stocks. When the institutional investors came on this stocks the demand and share price were also grown. For the high demand and attractive share price retail investors startrd to invest on the k-10 stocks. On the time period of 1997 to 2001-02 dot com boom was going on. Then the technology and telecom equipment provider company’s stocks are growing rapidly. Investors showed more interest for this stocks. On that time ketan started to manipulate the technology,telecom provider and media company’s stock. So anyone could not understand the manipulation of ketan’s stocks. In short the timing of ketan parekh was perfect. It was looked that the rapid increasing of k-10 stock’s price was for dot com boom,future growth and good fundamentals. Ketan tried mostly to give the more media attention for k-10 stocks so that the stocks was always touched its high point and investors were attracted to this stocks.
Ketan parekh manipulate the pentafour software’s stock from 175 rupees to 2700 rupees. Similiarly Global telesystems reached to 3100 rupees from 85 rupees and the share price of HFCL touched 2300 rupees from 42 rupees and also stocks of zee reached 11000 rupees from 750 rupees. In this way he manipulated other stocks. When the stocks reached a high level ketan started to dump the stocks and focused on some stocks. It meant that he bought more stock or increased his stake on this some particular companies.
To continue the scam ketan parekh collected money from mainly two places. They are:
- Company’s Promoters.
- Banks.
If promoters want to sell their shares they obviously want to sell in high share price so that they become profitable more. Some promoters takes loan depositing their stake. So when share price becomes high they can get more loan. For this company’s promoters gave money to ketan parekh to manipulate the share price.
Now explain about the bank fund that was taken by ketan parekh to go on the scam. Ketan parekh mainly got the fund from GTB(Global Trust Bank) and MMCB(Madhavpura Marcantile Co-operative Bank). When the stock price increased quite he deposit his shares and took loan that he used again to manipulate the stock’s price. Ketan parekh bought a large number of shares of GTB(Global Trust Bank). It was included in his plan. He used GTB with the help of officials to collect the fund. MMCB(Madhavpura Mercantile co-operative Bank),Gujrat based co-operative bank, had a big role in this scam. With the help of MMCB’s officials ketan picked huge loan. As a guidelines of RBI any bank could not give loan more than 15 crore rupees to a stock broker. In spite of being the guidelines MMCB gave 800 crore loan to ketan. And GTB gave loan about more than 100 crore rupees. MMCB broke the rule and with this MMCB gave loan to ketan parekh without any proper papers. To pick fund harshad mehta misused ‘ready forward deal’. Similiarly ketan parekh misused ‘payment order(also known as pay order)‘ instrument. For this ketan parekh took the help of MMCB. Payment order was a pre-paid instrument like DD(Demand Draft). To take the pay order at first you have to pay the amount to the bank which issue the order. MMCB issued this to the companies of ketan parekh. Ketan’s companies had a current account on Bank of India(stock exchange branch). Stock exchange branch of Bank of India was a big branch where huge transactions were done. And for quick payment ketan deposited MMCB’s pay order to BOI’s stock exchange branch. Bank of India(BOI) charged 18.5% interest on pay order. In march 2001 MMCB issued 137 crore pay order to ketan’s companies on BOI’s stock exchange branch. So Bank of India sent to clear the pay orders. Next the MMCB which issued the pay order should clear the payments. Normally amid 3 days if pay orders were not come from clearing house then it was understood that pay orders were cleared. But after 11-12 days RBI returned pay orders to bank of india. But bank of india paid ketan’s companies already. Anyone could not expect it from RBI(Reserve Bank of India) and even other bankers were suprised. Those pay order was bounced because MMCB did not participate on clearance and had not also sufficient fund to them. So RBI declared MMCB defaulter. Bank of india lost 137 crore rupees. Then bank of india told ketan to return the amount. Ketan returned 7 crore rupees to bank of india and forbid to give 130 crore rupees. Bank of india imposed of 130 crore rupees fraud to ketan parekh and filed a complain. Then CBI arrested ketan parekh and the ketan parekh scam came in light.
Like harshad mehta scam Sucheta Dalal had a great role to expose ketan parekh scam. For the misbehaviour of MMCB public depositers of it affected huge. After declaring defaulter MMCB did not return money to its many public depositers. In 2012 RBI banned MMCB’s license. In his stock manipulation operation ketan made a network of 20-25 companies that he was operating. The money of banks and promoters was sent to his network’s company and then it was sent to his another network’s company. The money of bank of india instantly sent to his network’s company and he used it in stock market. It helped him to conceal the data such from where was the money coming etc. Ketan used this network for circular trading and also for taking loan. When dot com bubble bursted many technology company started to fall. Then in march 2001 many investors started to short sell the k-10 stocks because of over valuation. For this market was going down. With this retail and institutional investors were selling their shares. The stocks where ketan invested huge had faced downfall. Where Retail and short seller sold their shares there ketan tried to keep overvalued k-10 stocks. But ketan could not fight more to market. When this share price fell then ketan faced problems to take loan from the banks. He arranged some money to fight with the market but he defeated.
On this time ketan’s pay order was exposed and his scam came in light. Ketan’s stocks that were growing rapidly were fell rapidly after exposing his scam. Such Global telesystem’s share price came to 120 rupees from 3100 rupees and HFCL’s share price came to 90 rupeea from 2300 rupees. Like this other stocks of k-10 fell quite its share price. The investors of k-10 stocks and MMCB and GTB faced huge lose after exposing the scam.
Ketan parekh was banned to trade in stock market till 2017. But in 2009 it was come to know in SEBI invedtigation that ketan was trading with the help of some companies and he was active in stock market. For ketan parekh Calcutta Stock Exchange lose about 100 crore rupees for payment crisis. On march 2014 special CBI court sentenced him for 2 years. He was exposed in ketan parekh scam in 2001 but ketan took part in Canfina mutual fund scam in 1992 . And for this he was sentenced then for one year. But in this time period ketan sent 2000-3000 crore rupees abroad with the help of OCD(overseas corporate body). CBI had took the rights of his swiss bank. Ketan sent money to different country’s bank without swiss bank. Ketan had agood relation with politician. For this he could go so far on his scam. Till now many cases are pending on him.
If you have any query related to ketan parekh scam please comment below so that the topic can be covered.
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