HISTORY OF THE SCAMKetan Parekh a trainee of Harshad Mehta from Mumbai was a former stock broker who was declared to be guilty of a criminal offence by the verdict of the jury for he played a major manipulative role in the Indian stock market scam which took place between 1999- 2001. However now he has been barred from trading in the Indian stock exchanges till 2017. Ketan Parekh is claimed to have complicated himself in the circular trading for a prolonged period of time with a number of companies including Global Trust Bank and Madhavpura Mercantile Cooperative Bank. Ketan Parekh was found guilty by the court and was sentenced to imprisonment for a period of one year because of a transaction which was done by him involving a unit of Canara Bank in 1992. The Securities and Exchange Board of India were able to identify that though Ketan Parekh was barred from entering the stock market for trading there were supposed to be a number of companies who were trading on behalf of Parekh.
CENTRAL BUREAU OF INVESTIGATION COURT IN MUMBAIWith such findings after the investigation nearly 26 entities were banned from trading. However in March 2014 Ketan Parekh was proved guilty and was convicted by a special Central Bureau of Investigation court in Mumbai, India for his cheating and based on criminal grounds was sentenced to two years of rigorous imprisonment with total fine of Rs 50,000. During its investigation the CBI had also sent some Letters Rogatory to different countries where the agency has prima facie found that the big bull Ketan Parekh had siphoned off the money allegedly acquired through the multi-crores Madhavpura Mercantile Co-operative Bank scam. Some of the top positioned CBI officials declared that Ketan Parekh has not only siphoned off money in Swiss Bank but also in different banks in various other countries. The CBI has already sent a Letter Rogatory to Switzerland authorities who were examining the request by India seeking details of the bank account of Parekh.
INTERPOL FOR AN INTERNATIONAL PROBEThe account, allegedly containing millions of Swiss Francs, had been frozen by the Swiss authorities after the CBI made a request to the Interpol for an international probe into the alleged siphoning off of money from India, the sources said. However the agencies which were probing on the Ketan Parekh's scam denied disclosing the names of the banks and the different countries where Parekh was suspected to have siphoned off his money. The sources were very clear on one fact that Ketan Parekh had routed a considerable amount to his overseas accounts from the bank. Some of the major firms which have been precluded from the securities market include Maruti Securities Ltd (MSL), Kundan Leasing & Finance Pvt Ltd, Chandra Financial services Pvt Ltd, Jay Investrade Pvt Ltd and HSM Financial Services Ltd. These entities allegedly executed synchronized trade in five scripts, which includes Cals Refineries Ltd, Confidence Petroleum India Ltd, Bang Overseas Ltd, Shree Precoated Steels Ltd (SPSL) and Temptation Foods Ltd (TFL).
INVESTIGATIONAll the above mentioned entities were performing as a channel for Ketan Parekh and executing synchronized deals in five scripts over a period of 26 months from January 2007 to February 2009. During the investigation done by Sebi it was noted that in all the trade that was done the buying and selling order quantities and order rates remained the same and also matched exactly with the time difference which was less than 60 seconds and also in all the trades the concerned clients were appearing simultaneously on both sides of the trade. These trades fetched all the involved firms a profit of Rs 42.01 lakh, 4.72 crores respectively on account of their dealing in the scripts of Confidence Petroleum and Bang Overseas Ltd. However, they incurred huge losses of Rs 3.68 crores, Rs 7.64 crores and 4.68 crores respectively while dealing in the scripts of Cals Refineries, SPSL and TFL. But in spite of the loss there were non profitable transactions which were made which very clearly indicated that there was a substitute pay off which was happening outside the securities market.
SECURITIES AND EXCHANGE BOARD OF INDIAKetan Parekh one of the major stock broker in the share market was identified to be the sole person responsible for the 2001 scam which happened in the entire stock market. This happened during the month of March in 2001 and was initially discovered by the Joint Parliamentary Committee. Katen Parekh was held responsible for the collapse in the Madhavpura Mercantile Co-operative Bank and also for the payment problem which was a big issue then in the Calcutta Stock Exchange market. The Joint Parliamentary Committee had drafted a report which stated that Katen Parekh was operating from a various number of other large entities which aided in not exposing of the nexus that happened between the source of fund and the ultimate use. Katen Parekh has planned in such a way that he conveniently designed different layers in the process of his transactions which further led to complication so as to link the source of fund with the actual user of fund.
REPORT SUBMITTED BY SECURITIES AND EXCHANGE BOARD OF INDIAAfter a thorough investigation a report was submitted by the Securities and Exchange Board of India on Katen Parekh scam which let out the news that the amount outstanding from Katen Parekh to a few corporate houses in the year 2001 towards the end of April 2001 was about Rs 1,273 crore (Rs 12.73 billion).Katen Parekh also had an outstanding of Rs 888 crores (Rs 8.88 billion) to MMCB and to Global Trust Bank it was about Rs 266 crores (Rs 2.66 billion). Not only the above mentioned entities but various organization and firms had pending amount to be got from Katen Parekh according to the investigating report submitted by the Securities and Exchange Board of India (SEBI).It was also revealed that Katen Parekh using his rapport with political heads and religious leaders was able to hook up lot of funds from corporates and banks which had gone to three major groups on the CSE and had been utilized in different operations of the capital market.
FOREIGN INSTITUTIONAL INVESTORS
It also added to the report that the grounds of CSE was mainly opted by Katen Parekh so as to make use or exploit the known weakness of the exchange. Katen Prekh's success in this scam involved a vast networking of a number of overseas corporate bodies, foreign institutional investors' sub-account and mutual funds for large money transactions. The most shocking part of the scam was how both the stock exchange and the Securities and Exchange Board of India kept themselves unaware of the happenings of Katen Parekh's manipulative work in the stock market using his sound and well- built network. It stands quite ambiguous from the media platform. But however Katen Parekh at the time of giving his oral evidence to the Joint Parliamentary Committee had clearly owned that he was responsible and was highly involved in the crisis of the CSE payment and also the crash of MMCB which took place in March 2001. Also Katen Parekh added and admitted to the evidence given to the investigation team that he used select scripts and made it possible to build huge positions in the stock market and thereby he crossed the limits and the principles of risk management.
FINDINGS OF SECURITES AND EXCHANE BOARD OF INDIA (SEBi)
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