WHO IS KETAN PAREKH ?

Ketan parekh was chartered accountant and belongs to Gujrati Family. He Lived at Bombay
(Mumbai). His Father has Stock Broking Firm named NH Securities.

After completing CA, he was an intern of Harshad Mehta. His only dream was to rule the stock
market of India, so he decided to join Harshad Mehta's firm to learn some tricks to deceive the
investors.

He was an intern of Harshad Mehta. His only dream was to rule the stock market of India, so
he decided to join Harshad Mehta's firm to learn some tricks to deceive the investors.

At the height of his success Ketan Parekh was friends with international celebrities like Kerry
Packer and both of them had together started a venture capital with the intent of funding start-
ups in India.

Popularly, he known as Bombay Bull.

 ABOUT SCAM

Duration- 1997-2001

Ketan parekh did the scam with the help of circular trading or Pump and Dump Trading. In
other words we can say he did window dressing of shares. In which he bought share in large
numbers and then sell and purchase in between his different firms (which is a unlawful activity)
to rise the volume of the shares and attract institutional investors. And Promotes shares as high
earning shares on media so, the price of the share rises. When the share prices is higher then
he sold out or dump the share.

Fig. CIRCULAR TRADING

He did this practice with some selective companies stock which was rising in that time like
Telecom Industry, Technology and Media companies. He invested in selective companies
called as KP-10 Companies which are:
  AFTEK INFOSYS

 DSQ SOFTWARE

 GLOBAL TELESYSTEMS

 HIMACHAL FUTURISTIC COMMUNICATIONS

 PENTAMEDIA GRAPHICS

 SATYAM COMPUTERS

 SILVERLINE TECHNOLOGI

 SSI

 ZEE TELEFILMS

 PRITISH NANDY COMMUNICATI

SOURCES OF THE FUND

There are two sources:

1. Promoters of the company (NH Securities)

 2. Banks

In the whole scam two banks has play the important roles which are:

 GT BANK

Global Trust Bank (India) (GTB) was founded on 21 October 1994 and commenced operations
at Secunderabad. Its founders included Ramesh Gelli (its first Chairman), Sridar Subasri, and
Jayant Madhob, among others. The bank introduced a number of technology-based innovations
and responsive service.

 Madhavapura Mercantile Cooperative Bank (MMCB)

Madhavpura Mercantile Cooperative Bank (MMCB) was a Gujarat-based interstate cooperative

bank that became defunct and lost its licence after it was unable to pay back the money it owed
public depositors. Reserve Bank of India cancelled its licence in June 2012 under section 22 of the
Banking regulations Act, 1949

From GT Bank takes approx. 100 crores loan. Whereas, from MMCB he takes approx. 140
crores loan.

Whereas, above 15 crores loan is not allowed without security deposits but the allow him to
take without any deposits.
 LOOPHOLES OR WEAKNESSES OF THE LAW

SCAM HAPPENS DUE TO LOOPHOLES IN THE SYSTEM

The All India Bank Officers' Confederation (AIBOC) today alleged that most financial
scams take place due to loopholes in the system.

At a public meeting here on "Crisis in the Banking Sector", the confederation, along
with other associations and trade unions like the Centre for Financial Accountability,
the National Alliance of People's Movement and the New Trade Union Initiative, looked
into recent financial scams and held talks on the "legal loot of the public money".

"Why the RBI, the finance ministry, the CVC and others in the government wake up
only when a major scam surfaces? Why are we not analysing the failure of the system?
What is the role of the government and its policies which cause system failures and
scams? There have been Harshad Mehta scam, Ketan Parekh scam and the NPA
scam due to misuse and loopholes in the system," D T Franco, general secretary of
AIBOC said.

While discussing the topic, the panellists also dwelt on the issue of privatisation of
banks, which they alleged had been advised by the chief economic adviser to the
Centre.

During the meeting, some suggested that the government publish the names of bank
loan defaulters and direct the banks to write to the home minister to make entry in the
passports of the directors of these companies so that they cannot flee the country.
THE SYSTEM THAT BRED THESE FACTORS:-

The small investors who lost their life's savings felt that all parties in the functioning of the
market were responsible for the scams. They opined that the broker-banker-promoter nexus,
which was deemed to have the acceptance of the SEBI itself, was the main reason for the scams
in the Indian stock markets.
TSEBI's measures were widely criticized as being reactive rather than proactive. The market
regulator was blamed for being lax in handling the issue of unusual price movement and
tremendous volatility in certain shares over an 18-month period prior to
February 2001. Analysts also opined that SEBI's market intelligence was very poor.
Media reports commented that KP's arrest was also not due to the SEBI's timely action but the
result of complaints by BoI. A market watcher said[1] ,"When prices moved up,
SEBI watched these as 'normal' market movements. It ignored the large positions built upby
some operators. Worse, it asked no questions at all. It had to investigate these things, not as a
regulatory body, but as deep-probing agency that could coordinate with other agencies. Who
will bear the loss its inefficiency has caused?"An equally crucial question was raised by media
regarding SEBI's ignorance of the existence of an unofficial market at the CSE.
Interestingly enough, there were reports that the arrest was motivated by the government's
efforts to diffuse the Tehelka controversy.

Many exchanges were not happy with the decision of banning the badla system as they felt it
would rig the liquidity in the market. Analysts who opposed the ban argued that the ban on
badla without a suitable alternative for all the scrips, which were being moved to rolling
settlement, would rig the volatility in the markets. They argued that the lack of finances for all
players in the market would enable the few persons who were able to get funds from the
banking system - including co-operative banks or promoters - to have an undue influence on
the markets.
PUNISHMENT GIVEN TO OFFENDERS
 Sebi conducted investigations into the dealings of scrips of Himachal
Futuristic Communications, Zee Telefilms, Adani Exports, Global
Tele-Systems, Ranbaxy Laboratories, Shri Adhikari Brothers
Television Network, Shonkh Technologies International, Padmini
Technologies and Aftek Infosys during the period October 1999 to
March 2001.

The investigations revealed that Ketan V. Parekh and 17 other

entities who were directly or indirectly associated to him were
involved in the manipulation of these scrips.

Ketan V. Parekh was found to be the master mind behind all the acts
of omission or commissions by these entities, the Sebi order said.

The ten associates Kartik K. Parekh, Classic Credit, Panther Fincap

and Management Services, Luminant Investment, Chitrakut
Computers, Saimangal Investrade, Classic Infin, Panther Investrade
, Goldfish Computers Pvt, and Nakashtra Software have also been
barred from accessing the securities market directly or indirectly, for
a period of 14 years, the Sebi order said.

 Sebi, in an order issued, said it was banning Ketan Parekh and

associates for a total of 14 years, effective from December 12, 2003.

 Earlier, on November 12, 2007, the Securities and Exchange Board

of India had barred Ketan Parekh and his associates, who were
instrumental in the stock scam of 1999-2001, from accessing the
stock market for another ten years.

 As of April 1, 2008, All of them are out on bail, and Justice V M

Kanade of the special court (For trial of Offences Relating to
 Transactions in Securities Act) extended their bail till July 31, to
enable them file appeals in the Supreme Court.

NEW LAWS INTRODUCED BY SEBI

Pre Ketan’s scam ,there were hardly any strict regulations in place to check manipulations in

trading,pump & dumping of stocks, which investors lost wealth unsuspecting in which the

operators used to manipulate the share prices in correlation with share sub brokers who were

persons of interests in the markets, since there were no online trading back then.Orders were

used to be placed on floors by brokers.

There were amendment made in the securities laws act of 1995,this gave a stronger teeth to the

regulator SEBI to regulate FII’s, VC’s & other hedge funds. There was also mandate to
disclose

company issuing securities.

The market regulator was also empowered an investigation arm which could audit ,inspection
of

MF’s ,exchanges.

How did Ketan Parekh con the markets then if regulator was stronger than it was before Mehta?

Well there were many loopholes still existing, like the trading cycle was one week.

‘Badla’ was the informal future trading in which there were mainly three types :

Quasi Hedging

Stock Lending

Financing

Badla system was a loophole which Parekh used to scam the markets.

The main disadvantages were margins were collected on the lower side,allowed excess

leveraged trading & it did not have any proper surveillance over it.
It was a cash market transaction,the shares were only transferred when full payment was

made.The counter party defaults were on higher side ,since there were no strong regulations.

When the stock prices were higher,the shares were pledged as a collateral to banks.But what

happened when stock prices came down? The collateral were insufficient, but he had already

borrowed quite a lot of funds,he used to manipulate the stock prices so that they never came

down ,for example zee telefilms were manipulated from 130 to 2200.

Badla system was banned, now you have proper derivatives F&O, which is heavily
regulated

right from surveillance of stocks to SPAN margin to collaterals to be kept with CSDL/NSDL.

List of Changes by SEBI after the Harshad Mehta Securities Scam ¾ Strict full disclosure
norms

were introduced. The full disclosure norms were with respect to material facts, specific risk

factors, prudential norms, etc. ¾ The Listing Agreement413 was introduced and adherence to
it

was made mandatory by all listed companies. ¾ A code of advertisement was introduced to

ensure that the companies disclosed all the information in an honest and trusted manner to the

investors at the time of making a public offer for purchase of securities. ¾ The National Stock

Exchange (NSE) with online, screen based, nation-wide electronic trading was introduced to

increase transparency of operations. ¾ The Bombay Stock Exchange (BSE) switched over to

online, screen based trading. ¾ A revised “carry forward” system replaced the “badla”414

system. ¾ Guidelines regarding requirements of full disclosure to SEBI were introduced. ¾

Requirements to be fulfilled before making public offers for purchase of securities to the public

were also introduced.

with Ketan Parekh's famous K-10 stocks being hammered down and coating many
investors their lives

savings, came the Sebi (Amendment) Act of 2002. This gave Sebi the power to call for records
from any

bank, authority or board. It also empowered the regulator to inspect books of any listed public
company.

Sebi could now, suspend trading of a security, bar persons and companies from accessing
markets and

suspend any office bearer in a stock exchange. It was also granted powers to attach, impound,
and retain

the proceeds of any transaction that was not by the book. Sebi could also specify requirements
for listing

and transfer of securities.

Also, offences like insider trading and unfair trade practices were spelt out better, and expressly

forbidden. More power also came in the own of higher punitive powers. So fines of upto Rs 25
cr or three

times the unlawful gains, whichever is higher, were allowed and were jail terms from 1 to 10
years were

introduced.

The Securities Laws (Amendment) Act of 2004 followed. As per the recommendations of the
Joint

Parliamentary Committee on the stock market scam, a law was enacted for the de-mutualisation
of

exchanges. This put an end to exchanges being incorporated as ‘mutual’ organisations where
the traders

and brokers owned, controlled an managed the exchange. So exchanges were corporatized,
putting public

interest first.
These wholesale changes contributed towards arming the regulator better. But Sebi’s keenness
to stay

ahead of the curve does not stop there. Acting in concert with other stakeholders, Sebi sought
to move

from a merit-based regime to a disclosure-based regime. In the next part of the series, explore
how Sebi

sought to usher in greater transparency and efficiency.

 SUGGESION
1. Spot imposters. Scammers often pretend to be someone you trust,
like a government official, a family member, a charity, or a company you
do business with. Don’t send money or give out personal information in
response to an unexpected request — whether it comes as a text, a
phone call, or an email.
2. Do online searches. Type a company or product name into your
favourite search engine with words like “review,” “complaint” or “scam.”
Or search for a phrase that describes your situation, like “IRS call.” You
can even search for phone numbers to see if other people have
reported them as scams.
3. Don’t believe your caller ID. Technology makes it easy for scammers
to fake caller ID information, so the name and number you see aren’t
always real. If someone calls asking for money or personal information,
hang up. If you think the caller might be telling the truth, call back to a
number you know is genuine.
4. Don’t pay upfront for a promise. Someone might ask you to pay in
advance for things like debt relief, credit and loan offers, mortgage
assistance, or a job. They might even say you’ve won a prize, but first
you have to pay taxes or fees. If you do, they will probably take the
money and disappear.
5. Consider how you pay. Credit cards have significant fraud protection
built in, but some payment methods don’t. Wiring money through
services like Western Union or MoneyGram is risky because it’s nearly
impossible to get your money back.
 CONCLUSION

Ketan Parekh is a former stock broker from Mumbai, India, who was convicted
in 2008, for involvement in the Indian stock market manipulation scam that
occurred from late 1998 to 2001.[1] During this period, Parekh artificially rigged
prices of certain chosen securities (informally referred to as K-10 stocks), using
large sums of money borrowed from banks including the Madhavpura
Mercantile Co-operative Bank, of which he himself was a director. [2] As a result,
he was barred from trading in the Indian stock exchanges till 2017.
 BIBLOGRAPHY
Books:
 Dalal, Sucheta (2000),A.D.Shroff: Titan of finance and free Entreprise, New
Delhi;Viking

Websites:
 www.sebi.gov.in
 https://www.business-standard.com/article/pti-stories/scams-happen-due-to-
loopholes-in-the-system-bank-officers-body-118022400022_1.html
 https://en.wikipedia.org/wiki/Ketan_Parekh
 https://www.consumer.ftc.gov/articles/0060-10-things-you-can-do-avoid-fraud
 https://www.business-standard.com/article/pti-stories/scams-happen-due-to-
loopholes-in-the-system-bank-officers-body-118022400022_1.html
 ps://economictimes.indiatimes.com/markets/stocks/news/remember-ketan-
parekh-some-kp10-stocks-still-doubled-investors-
wealth/articleshow/53111351.cms