Ketan Parekh- The Second Biggest Scam Story

December 15, 2021 by Vandana S · 4 min read

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The first biggest financial scam of India was the Harshad Mehta scam, where he swindled a large sum of money from the banks through its loopholes. Once the scam was exposed, a lot of changes were made in the financial system of India. Yet, the second scam happened and the person to execute the same was Ketan Parekh.

Beginning

Ketan Parekh, a CA by profession started his career in the 1980s. He worked in NH securities, a stockbroker firm started by his father. While working in the firm, he learned the basics of stocks. His mentor was Harshad Mehta. He was famously called the Bombay Bull, as he made money from nothing. A popular story that ran among the investors during the ’90s was that he was such a good trader that any stock he touched turned gold and profitable. His wishes were answered by the market.

He had influenced the politicians, filmmakers, and bankers, which aided him in getting in touch with Kerry Packer, an Australian Media Entrepreneur. Ketan and Kerry jointly set up a venture called KPV, which invested in start-ups.

ICE stocks

Ketan Parekh strongly believed in 3 sectors and often his investments were in those 3 sectors namely Information, Communication, and Entertainment. The period in which he invested in these stocks was in 1999-2000, during the dotcom bubble. He had a good reputation and handled the finances of politicians, filmmakers, bankers, and all high-profile individuals.

Ketan Parekh traded in Kolkata Stock Exchange where the regulations were relaxed. He appointed many stockbrokers who worked for him for commission. They used to trade on behalf of Ketan Parekh and used to buy many shares of companies that were not that well heard off. Since Ketan Parekh would have bought 20-30% of shares, the share prices of those stocks would be driven up, making other investors buy them too. After a few days when the price of stocks would have reached a level, silently Ketan Parekh would exit the stock after reaping a high amount of profits.

Bank fraud

He even fooled many banks to assist him in trading in the stock market. Ketan Parekh bought the shares of Madhavpura Mercantile Commercial Bank (MMCB) via pay order. Pay order is an instrument issued by the banks against a sum of money paid in advance by the client. With the help of pay orders, he reduced the share prices of MMCB banks. Similarly, he approached UTI and HCFL and got pay orders from them as well. He accumulated a loan of 750 million.

His scam was uncovered when the stock market crashed by 176 points in 2001 right after the announcement of the budget. SEBI and RBI began their investigation. BSE chief Anand Rathi resigned as many questions were being raised and many lost money due to the sudden crash. In March 2001, Parekh was arrested for defrauding MMCB for 1030 crores and Bank of India for 137 crores.

Scam exposed

It was revealed that Ketan Parekh has managed to manipulate shares of 6 companies registered with various stock exchanges. Few companies were used as a mule to arrange funding from 8 banks. It was well thought of a plan to swindle and manipulate the market.

Further investigation suggested that black money was transferred to Overseas Corporate Bodies (OCB). Many corporate entities issued shared with the OCB’s. these shares were procured by companies controlled by Parekh in a legitimate manner, converting the black money to white.

K-10 stocks

K-10 stocks were the top 10 stocks chosen by Ketan Parekh which included Zee telefilms, Aftek Infosys, Mukta Arts, and so on. These were the sought-after stocks in the 1999-2000 period. Once the scam was unfolded, Ketan Parekh was banned from trading for a period of 15 years.

Justice

A subsequent investigation later revealed in 2008 that he was trading on behalf of his network. These companies were traced by SEBI and banned them from trading. In 2014 after a CBI investigation he was imprisoned for a period of 2 years and a fine of 50,000 for his malpractices in the stock market. What do you think could be the changes brought about by SEBI after this scam? Do let us know.

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