Corporate Scams

Who is Ketan Parekh?

Professionally Ketan Parekh worked as a chartered accountant. All of this helped him form his private trading network, and he gained the stock market's bull reputation. Ketan Parekh, who inherited the stock market from his father, was a family business. Ketan Parekh's net worth is reported to be $8.7 million. In his pinnacle of success as a 'Bombay Bull' in 1999-2000, investors backed him completely as he leveraged stock prices to earn traders' confidence. Not just this, Ketan Parekh had direct links to several film stars, political groups, and corporate leaders.

Ketan Parekh and Harshad Mehta Link

Harshad Mehta, who was at the pinnacle of his success in the era, befriended Ketan Parekh in the 1990s. Harshad Mehta founded GrowMore Investments, which Ketan decided to join. This company was one of the primary alleged victims of the 1992 headline scandal. According to media sources, Harshad Mehta's strategies, insights, and links aided Ketan Parekh in pulling off such a big con.

Ketan Parekh Scam 1992: A Complete Overview

The "circular trading" and "pump and dump plan" were essential in the Ketan Parekh scam.

-Pump and Dump Plan

It occurs when he buys 20 to 30 percent of a firm's stock in expectation of generating a value increase. Many investors will be attracted to investing due to rising costs. He would sell them once the market had increased to sell his ownership.

-Circular trading

It is a tactic in which Ketan Parekh enlisted the help of many inexperienced or beginner traders to purchase and sell particular stocks on his behalf several times during the day. This led to a sharp increase in "sales values." Investors that make investing selections based on the amount traded will regard such equities as active. He would gain from the price increase and charge fees to the brokers.

• He bought shares in Madhavapura Mercantile Commercial Bank (MMCB) to influence the bank's loan selections. Then he obtained a large debt from MMCB in the form of payment demands, which he guaranteed with other banking firms such as HCFL and UTI when prices rose. There were about 1.3 million pay demands made. His loan was worth $750 million. He also received large sums of lending money from the company founders and shareholders to increase the trading volumes of their companies.
• Investors started purchasing these shares, causing the price to rise, and then Ketan traded the shares, known as the Badla System.
• Aftek Infosys, DSQ software, Satyam computers, Zee telefilms, MUKTA, TIPS, Amitabh Bachchan Corporation, PNCC, Pentamedia, Himachal Futuristic, Silverline Technologies, and others were among the prominent stocks he traded. Zee TV shows increased from Rs. One hundred twenty-seven increased by Rs. 2330 within a relatively short time, while Visual jumped from Rs. 625 to Rs. 8448 in a flash. He made a 200 percent profit on the price of some equities.
• Like so many other stories, his big plan came crashing down. RBI and SEBI were quick to note that his income and the loan he acquired were out of the ordinary. He was held for more than 53 days after being captured in March 2000. The stock markets fell by over 176 points on March 1, 2000, leading traders to lose around 2000 crores.
• As a consequence, SEBI enacted a slew of guidelines and policies. The Badla system and circular trade have been banned. Every year, it examines all.

Financial information related to the stock market. Only BSE and NSE were authorized to grant guaranteed loans.

Violation of the law

Check out what law was broken by the Ketan Parekh Scam: To begin with, he had been receiving funds from the founders of different firms to raise their stock values. This is considered insider trading, which puts Ketan Parekh at serious risk. Ketan Parekh had misappropriated massive sums of money from the Madhavapura Mercantile Commercial Bank (MMCB). He was suspected of having bribed bank employees to credit the shares at a level exceeding the legal limit. When it offered credit to Ketan Parekh, the bank broke its own rules by lending against market commodities. The bank then began providing him with unregulated debts.

Ketan Parekh Scam 1992: Gets Exposed

Sucheta Dalal, like in Harshad Mehta's case, played an influential part in exposing the Ketan Parekh scam also. Investors lost a lot of money as a result of MMCB's activities. They had not repaid the funds of several investors after being deemed bankrupt. RBI eventually suspended MMCB's license in 2012. Ketan Parekh developed a team of 20-25 firms to engage in securities fraud. He used to transfer funds to one of the firms he received from his banks and investors. The funds were then transferred to a different business. He immediately moved the funds he received from the Bank of India to one of his firms and invested them in stock markets. This approach allowed him to hide all of his illegally obtained funds from multiple avenues.

Government Action against Ketan Parekh Scam

• After a massive market drop of 176 points in 2001, just one day after the budget was announced, SEBI and RBI began examining the situation. Ketan Parekh was charged with market manipulation, circular trading, pump and dump, and misrepresentation to obtain bank loans.
• Ketan Parekh was found responsible for the theft of the Indian stock exchange and was banned from trading on the Bombay Stock Exchange (BSE) for 15 years, which ended in 2017. He was also discovered to be involved in Circular Trading with many banks and Insider Trading. For this, he has been jailed for one year.
• The government has ordered legal proceedings against 16 firms belonging to the Ketan Parekh group for their roles in the 2001 stock market fraud.
• In 2014, the CBI discovered his illegal activities and punished him with two years in jail and a penalty amounting to Rs. 50,000. He stole the cash abroad. In April 2001, the SEBI revealed that he had a remaining balance of Rs. 12.73 billion to significant business enterprise entities, Rs. 8.88 billion to MMCB, and Rs. 2.66 billion to the Global Trust Bank.
• To summarize the allegations against Ketan Parekh, he was convicted of defrauding banks by distorting factual data, providing false transactions, breaking up share prices, manipulating shareholders' judgments, mismanaging public funds, and bribing top executives to allow him to engage in securities fraud.

A final view: Ketan Parekh Scam

This post looked at how Ketan Parekh used his deception to influence traders' judgments. Ketan Parekh misled financial markets and shareholders successfully. And it all added up to a mountain of debt, culminating in the largest stock market fraud in Indian history on one day in 2001. If you want to be an investor or a stock market trader, we recommend following in the footsteps of Warren Buffett and RadhakishanDamani. People sometimes rush into things in life to get instant popularity. However, keep in mind that there is no alternative to success; you must work constantly and devote yourself to every task.