INSTITUTE OF MANAGEMENT, NIRMA UNIVERSITY

BBA-MBA Integrated course

Term – V

Group Assignment
Report on Gross ethical misconduct by Ketan Parekh

Submitted to:
Prof. Pallavi Mittal

On
(20/11/2020)

Submitted by:
Roll No. Name

197102 Aayushi Jani

197107 Anoli Shah
197122 Harsh Ahuja
197134 Muskan Paliwal
197139 Preet Kawedia
 ACKNOWLEDGEMENT
In performing our assignment, we had to take the help and guideline of some respected
persons, who deserve our greatest gratitude. The completion of this assignment gives us
much Pleasure. We would like to show our gratitude Prof. Pallavi Mittal, Institute of
Management Nirma University for giving us a good guideline for assignment throughout
numerous consultations. We would also like to expand our deepest gratitude to all those who
have directly and indirectly guided us in writing this assignment.

In addition, a thank you to Professor Amola Bhatt, who introduced us to the Methodology of
work, and whose passion for the “underlying structures” had lasting effect.

Many people, especially our classmates and team members itself, have made valuable
comment suggestions on this proposal which gave us an inspiration to improve our
assignment. We thank all the people for their help directly and indirectly to complete our
assignment.
 EXECUTIVE SUMMARY
The point of this document is about the scam done by Mr. Ketan Parekh in 1997-2002. The
main focus in this document is on Ketan Parekh and the unethical procedure that he followed
to do the scam. The scam was done by seeing the loopholes in the financial sector starting
from the Kolkata share market and used to raise the share prices of the companies illegally
and hence made a lot of money in this process. However, since no crime can be hidden from
the law, his malpractices were caught by SEBI. Necessary actions were taken by various
special courts and penalties were taken. By this it is prevalent that there are loop holes in the
economy and the share market which can be misused by some brains for money and profit.
 TABLE OF CONTENTS
Sr. No. Contents Page No.
1 Introduction 1
2 Who is Ketan Parekh? 2
3 The Unethical method adopted 3
4 Actions taken by the government 9
5 References 10
 INTRODUCTION

Ketan Parekh scam was a scam started in 1997. In the scam Ketan Parekh used the trick of
PUMP AND DUMP. Where at first, he uses to busy all shares in a large number and then
manipulate industrial investors and increase the price of the share. This increase in price was
known as PUMP. And when the shares prices would increase, he uses to sell also those at
once, when the investors use the to purchase it the real price would come and it was making a
huge loss to the investors. This selling part was known as DUMP. Through this scheme
Ketan Parekh created a big scam. In this scam, Ketan Parekh got funds from 2 banks at that
time, namely MMCB and GTB. Which late got the licenses cancelled because the provided
Ketan Parekh a loan of 800cr and 100cr respectively, and according you RBI rule the limit
was of 15 cr. Ketan Parekh also got in jail for a total of 3 year. 1 year in 2001 for his first
scam and then in 2014 for 2 years when he couldn’t pay back 130 cr. to BOI. And was
restricted from the stock market, but recently in 2017 SEBI found out that Ketan Pareek was
still in the stock market. And till date there are cases going on Ketan Parekh.

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 WHO IS KETAN PAREKH?
Former stock broker and also popularly known as ‘Bombay Bull’, KETAN PAREKH was
CA by profession. He was the pupil of the Indian stockbroker,  Harshad Mehta who was also
involved in another scam that shook the stock market in India. Bombay bull started his career
by managing his family business of NH Securities – a stock broking firm and this is how he
systematically understand the inside outs of the stock market trends and the investors’
mindsets. When his career was at its peak, market men in a real sense followed everything he
might do indiscriminately as he used to exploit the stock costs to gain the trust of these
financial specialists.

Some of reasons ‘WHY WHATEVER KETAN PAREKH TOUCHED TURNED INTO

GOLD?’

 The ICE area was blasting during that time and Ketan would put significantly into
these areas which helped him gain the trust of the speculators.
 He was exchanging Kolkata Stock Exchange which was missing exacting guidelines
itself. Subsequently, there was nobody to watch his moves.
 He would purchase portions of low-profile organizations when they were exchanging
at low costs and held hands with certain different merchants to every now and again
purchase and sell the loads of such organizations which empowered the abrupt value
rise.
 The financing technique for purchasing shares and getting pay orders and later getting
them swore when the costs shoot up likewise helped him make a Bull Run in the
securities exchange.
 Numerous financial specialists accepted that slipshod responses and guidelines of
SEBI who might have seen the abnormal value developments in the market helped the
trick to amass more misfortunes to them.
 His associations with VIPs, political and strict pioneers likewise helped him to get
most of the asset from huge corporate and money managers.

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 THE UNETHICAL METHOD ADOPTED

Sneak-Peak at Pump & Dump Scheme:

This arrangement is a misrepresentation scheme. The managers who run this trick, first buy
the segments of specific associations in a gigantic aggregate, and after this by faking
mistaken information, they endeavour to pull in theorists. A lot of theorists get trapped in
their extortion and start buying their offers. Also, thereafter the expense of the offer goes
high. In the wake of seeing the climb in esteem, progressively more works and budgetary
experts get pulled in towards them, and start buying their offers. This over the long haul
siphons the expense of the offer. Likewise, when the expense of the offers siphons, the heads
dump (sell)the shares and obtain incredible advantages.

Right when the chairmen quit propelling the offers, by then because the offer is overstated
and of the phony and misguided information about the offer, the expense of that offer
beginnings falling. Every last one of those theorists who have placed assets into that stock
face mishaps. Ketan Parekh used to buy stakes and control them. There are 2 kinds of money
related masters Retail Investors and Institutional Investors. Retail Investors are the ones who
buy shares for their own use, similar to you and me. Institutional Investments are the

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affiliations which make hypotheses for the people, as Mutual Funds, Insurance associations,
Hedge Funds, etc

Ketan Parekh's Tricks to Catch Investors:

Much equivalent to Harshad Mehta used to attract people towards Retail Investments, of
course, Ketan Parekh used to pull in Institutional Investors since they put assets into huge
entireties. He was a lot of mindful of the tricks with respect to how to attract the money
related authorities towards institutional endeavours in light of the fact that Ketan Parekh was
an Institutional Stock Broker. He started controlling the stocks by using different strategies.
A huge load of Institutional Investors favour liquidity. This is the inspiration driving why
Ketan Parekh started circular trading. In circular trading, you increase the assessment of the
stock erroneously. The quantity of bits of a particular association have been traded up until
this point, is known as the volume of that stock. The way where new examples come, the
volume likewise starts rising.

What Is Circular Trading?

In Circular Trading, directors do trade among themselves, like the primary executive offers
the proposal to the resulting chairman, second to the third one and the fourth to the fifth one.
Besides, this goes on, and the offers keep working between the executives, which
manufactures the volume of the stock. In circular trading, heads at first pick about how much
offers they will trade, at which cost, and when. After this, the director who will buy and sell
the offer, presents the solicitation all the while, which implies they put in the particular
organizing demands. Basically, the offers are then trading among these managers just, and the
volume of the offer goes up.

To do Circular Trading, Ketan Parekh used to buy and sell the parts of his own association,
and augmentation the volume of the stocks. Ketan Parekh was fundamentally controlling 10
stocks, which were called K-10 stocks. Considering high volume, those stocks could be seen
trading viably which was giving an inclination that monetary authorities are taking interest in

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that stock. Ketan Parekh was raising the expense of those stocks by placing a tremendous
proportion of money in them. That is the explanation examiners started partaking in those
stocks.

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 Ketan Parekh’s Power Games:

Ketan Parekh had great terms with some Institutional Investors. These speculators began
putting resources into K-10 stocks. At the point when Institutional Investors used to come,
the cost and request of that used to go high. Seeing this, Retail Investors likewise began
contributing with them. Between the time of 1997-2002, Dot-com-Boom was running, where
stocks of innovation, and telecom gear supplier organizations were rising quickly, and
speculators were taking a tremendous interest in these. Also, all at once, Ketan Parekh began
controlling the stocks of innovation, and telecom gear supplier organizations, and no one got
to know anything about this connivance. Ketan Parekh without a doubt had great planning
here.

This was giving the feeling that the costs of K-10 stocks were rising a direct result of good
future development, Fundamentals, and Dot-com-blast. Ketan Parekh made a decent attempt
to get Media regard for the stocks that he was controlling so those stocks ought to
consistently be in the spotlight, which will in the long run pull in speculators and it will build
the cost of the stock. Ketan Parekh controlled Pentafour Software, and its cost has gone up
from 175 to 2700. Additionally, the cost of Global Telesystems has gone up from 185 to
3100, HFCL has gone up from 42 to 2300, and Zee, 750 to 11000. He controlled numerous
different stocks like this. The second stock costs had gone high, Ketan Parekh began
unloading those stocks and he left his attention on chose stocks and made a decent position
and purchased more stakes in those organizations.

Company Price Rise in Price

Pentafour Software 175 2700

Global Telesystems 185 3100

HFCL 42 2300

Zee 750 11000

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To keep this scam running, Ketan Parekh mainly arranged for money from two sources.
Company’s promoters and banks. Promoters were wanting that when the price of the share
goes high, then they will sell the shares so that they will be able to earn a good profit.
Promoters of some of the companies, mortgaged their shares and took loans. When the price
of the shares increased, then promoters gets a high amount of loan. This is the reason why the
Promoters of the company used to give bribe to Ketan to manipulate the prices.

Parekh’s Network with Banks:

Lets presently talk about the asset that Parekh was getting from Banks: He for the most part
used to get assets from Global Trust Bank (GTB) and Madhavpura Mercantile Cooperative
Bank. At the point when the cost of the offer used to go up, at that point Ketan Parekh used to
take a credit against that offer, and he used to utilize that cash again to control the stock costs.
He had purchased great stakes in the GTBank. This was a portion of Ketan Parekh's
arrangement. He began organizing assets for himself with the assistance of GTB workers.
Then again, Madhavpura Mercantile Cooperative Bank assumed a major function in this
whole scam. A few officials of MMCB helped Ketan Parekh every which way. Also, with
their assistance, he figured out how to profit large credits from that bank. As indicated by the
rules of RBI, the bank shouldn't offer advance to a stockbroker in excess of 15 crore rupees,
in spite of the reality, MMCB endorsed him an advance of around 800 crore rupees.
Worldwide Trust bank likewise endorsed him a credit of in excess of 100 crore rupees.
MMCB broke the standard of RBI and gave assets to Parekh without an appropriate
Collateral.

The manner in which Harshad Mehta utilized Ready Forward Deal to mastermind reserves,
same way Ketan Parekh utilized the Payment Order to organize reserves and took help from
MMCB. Pay request is like a Demand draft in which before you take the compensation
request, the bank which should give you the request needs to pay the sum. MMCB used to
give pay orders for the sake of Ketan Parekh's organizations. Parekh likewise had a Current
Account in the Bank of India. (Stock Exchange Branch) Bank of India's stock Exchange
branch was very huge which used to bargain in enormous exchanges. Furthermore, for Quick
instalments, Ketan Parekh used to take cash from MMCB and store it in the Bank of India for

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getting cash. That time, the Bank of India used to charge revenue of 18.5% while giving
compensation orders.

In the year 2001, MMCB had given compensation requests to Parekh's organization of Rs
137 crore. Parekh's organization had provided these compensation requests to the Bank of
India's Stock Exchange Branch. At that point the bank had sent these compensation orders for
clearing. Along these lines, the bank used to get the cash from the Pay request bank.
Ordinarily inside 3 days, in the event that pay request return isn't utilized to go to a clearing,
at that point it is expected that pay request has been cleared. Be that as it may, RBI had sent
back these compensation requests to Bank of India following 11-12 days. However, Bank of
India had just moved the sum to the organizations of Ketan Parekh. Nobody figured RBI
would do this. This came as an astonishment to some Big Bankers moreover. These
instalment orders were bobbed in light of the fact that MMCB didn't partake in clearing,
additionally they didn't have adequate assets. At that point RBI proclaimed MMCB as a
defaulter and Bank of India endured lost 137 crores. Bank of India asked Ketan Parekh to
restore their cash. At that point Ketan Parekh returned just 7 crores and would not restore the
leftover 137 crores.

How the Ketan Parekh Scam Was Unfolded?

At that point Bank of India blamed him for 137 crore rupees and recorded a grievance. After
this CBI captured Ketan Parekh and this whole scam unfurled.

Much the same as the Harshad Mehta scam, Sucheta Dalal assumed an essential function in
uncovering the Ketan Parekh scam too. Because of MMCB's activities, their investors
endured gigantic misfortunes. In the wake of being announced defaulter, they had not
restored the cash of a great deal of contributors. Later in the year 2012, RBI dropped the
permit of MMCB. For his stock control, Ketan Parekh made a network of 20-25
organizations. The cash that he got from his banks and advertisers, he used to send it to one
of his organizations. At that point this cash used to get moved to some other organization.
The cash that he got from Bank of India, he immediately moved that cash to one of his
organizations and utilized that cash in stock markets. This moved helped him secluded from

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everything all his unseemly methods of gathering cash from different sources illicitly. He
additionally utilized his trading to take advances from banks and for Circular Trading.

At the point when Dot-com-Bub began blasting, that time the whole world was seeing a
stoppage in the Technology stocks. At that point in March 2001, a few Traders and brokers
began selling K-10 stocks which were exaggerated in view of the rising costs. Begun short
selling them, because of which Markets were confronting misfortunes. Then Retail Investors
and Institutional financial specialists likewise began selling their offers. The stocks on which
Parekh holds a major position began falling constantly.

When Institutional Investors, Retail Investors and short-venders were selling shares, Ketan
Parekh was all the while battling to spare the exaggerated stocks. Yet, Parekh couldn't figure
out how to battle with the market for long. At the point when the costs of the stocks began
falling, at that point Parekh began confronting challenges in raising assets from the banks. In
spite of the fact that he attempted to battle with the markets by orchestrating a few assets, he
fizzled. At that point Parekh's Pay request matter came into light, and the scam was
uncovered. The stocks that Parekh purchased, and the costs of those stocks got high in a
limited capacity to focus time, they began declining vigorously when the scam was
uncovered. Worldwide Telesystems dropped from 3100 to 120. HFCL dropped from 2300 to
120. Likewise, the excess stocks additionally endured misfortunes.

Individuals who put resources into K-10 stocks endured significant misfortunes. After the
Stock Market Scam came into light, MMCB and GTB likewise confronted misfortunes.

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 ACTIONS TAKEN BY THE GOVERNMENT
A special SEBI court sentenced Ketan Parekh and his relative Kartik in a securities scam for
breaking the rules of the SEBI Act. The Court has also put a fine of Rs. 10 lakhs on both. A
special SEBI court in 2018 sentenced Ketan Parekh and his relative in a securities scam for
breaking the rules of SEBI Act and convicted them to three years in jail.
Special judge V.C. Barde also levied a fine of Rs. 10 lakhs on Parekh and his relative Kartik.
The court had found that their company was guilty for the non-payment of penalty. Karthik
was later granted bail by the court.
According to the Securities and Exchange Board of India (SEBI), it had found that the
acquisition of shares of Shonkh Technologies International was made in violation of the
SEBI Act. After this, a settlement process was started and the presiding officer levied a
penalty of Rs 6, 50,000 on them.
After that they filed an appeal in the Securities Appellate Tribunal, but it was dismissed in
2007. The suspect had offered a demand draft of part payment of the penalty as an instalment
but the adjudicating officer refused. The Demand Draft was not accepted as there was no
provision for deferring payment of penalty.
Later SEBI approached the special court. Also, in the special court the suspect prayed for
compounding the offences but the court rejected it.

 Barred from trading in Indian stock exchange till 2017

 One-year immediate imprisonment

After the investigation, 26 entities were banned from trading. In march 2014, Ketan Parekh
was proved guilty and was convicted by a special CBI court in Mumbai, India for his
cheating and based on criminal grounds was sentenced to 2 years of imprisonment with total
fine of Rs. 50,000.

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 REFERENCES
 Business News. (n.d.). Retrieved November 19, 2020, from
https://m.economictimes.com/news/politics-and-nation/sebi-court-sends-ketan-
parekh-to-judicial-custody/amp_articleshow/61509313.cms
 Correspondent, S. (2018, February 28). Ketan Parekh sentenced to three years in jail.
Retrieved November 19, 2020, from https://www.thehindu.com/business/ketan-
parekh-sentenced-to-three-years-in-jail/article22876221.ece/amp/
 Guest. (n.d.). Global Digital Business Review - Vichet Sum. Retrieved November 19,
2020, from https://mafiadoc.com/global-digital-business-review-vichet-
sum_59feb8291723ddde84fa3824.html
 Ketan Parekh Scam - The Infamous Stock Market Fraud! (2020, November 19).
Retrieved November 19, 2020, from https://tradebrains.in/ketan-parekh-scam/

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