Ketan Parekh (KP) is a former Mumbai stockbroker who is notorious for masterminding the Indian stock market manipulation scam that took place from 1998 to 2001; the scam came to be known as the Ketan Parekh scam. He was a disciple of Harshad Mehta, who perpetrated the 1992 securities scam. Ketan is popularly known as the “May 4th Bull” of the Indian stock market.
Family and Early Years
Ketan Parekh was born in 1963 (59 years old; as of 2021) into a wealthy upper-middle class family of chartered accountants and stockbrokers. His father, Vinaychandra N Parekh, introduced him to the ever-changing stock market. After becoming a chartered accountant, KP started his career at a well-known institutional brokerage firm, Narbheram Harakchand Securities (NH Securities). His wife’s name is Mamta Parekh and they have two daughters. It is said that his family (wife and two daughters) moved to London to treat his daughter, who was suffering from post-viral encephalitis since the age of one and a half years.
Participation in Harshad Mehta scam
In the early 90s, Ketan came in touch with Harshad Mehta and joined Harshad’s agency GrowMore. Under his guidance, KP learned the modus operandi of the Mehta brothers (Harshad and Ashwin). Although Ketan got away with the Harshad Mehta scam, his role in the 1992 scam came under scrutiny when his own scam came to light in 2001. He was subsequently found guilty in 2008 for embezzling Rs 48 crore from a unit of Canara Bank in the 1992 scam and sentenced to a year in jail. In an interview with NDTV, Ketan Parekh said,
All we did was a transaction. We received the money from the mutual fund and the shares were delivered on time and the shares were registered on time. Other than that, we had no role in the transaction.”
Modus operandi
The ‘Pied Piper’ of Dalal Street was famous in the late 90s for turning everything he touched into gold. His business practices were as eclectic as his mentor’s, but unlike Mr Mehta, he did not use public funds to manipulate stock prices. Promoters of various companies provided funds to Ketan to manipulate stock prices. He also reportedly used his connections in Global Trust Bank and Madhavpura Commercial Cooperative Bank to get funds and illegally inflate the prices of various stocks. He used to accumulate huge volumes through online trading and then manipulate prices without anyone noticing. Ketan once manipulated the shares of Visualsoft, which soared from Rs 625 per share to Rs 8,448. He did the same with Zee telefilms, which saw its share price soar from Rs 30 per share to Rs 720.
In 2000, Zee Entertainment’s share price suddenly rose
To earn more profits, Mr. Parekh used financial institutions like UTI to sell high-priced stocks. In return, it is said that Khaitan received huge kickbacks from these companies in the form of equity. He was known as the “Five Bulls” and the “One-Man Army” for his aggressive investment style. In an interview with the media of India Today, an anonymous stockbroker said,
He may be down to earth, but he is very smart and savvy. He is very aggressive and known for moving fast. KP stock used to go up like a rocket—no gradual buildup. If he decides the stock should go down, he does it immediately.”
K-10 Stock
At the peak of Ketan’s dominance in the stock market, he picked 10 of his favorite stocks, which included Zee Telefilms, HFCL, Silverline, Satyam Computers, Aftek Infosys, DSQ Software, Ranbaxy, Pentamedia Graphics, Sonata Software and Visual Soft. Other stockbrokers euphemistically referred to these 10 stocks as the “K-10” stocks. Ketan was a savvy investor who was well aware of the IT boom in the late 90s and invested heavily in software and other technology-related companies.
Ketan Parekh shares fall after market crash
His Millennium Celebration
Despite the flamboyant image Ketan acquired after hosting a huge party called the Millenium Bash in 2000, he was a shy and soft-spoken stockbroker who, before this incident, kept a low profile, lived a simple life and kept away from the media. This made it difficult to believe that he was involved in the scam. Even Sucheta Dalal, the journalist who uncovered the Harshad Mehta scam, was quoted as saying in her 2003 article in Rediff:
When I met him sometime in July 2000, I too felt that he was too down to earth to go the way of Harshad. In fact, it was not until August 25 that I [2000]When the market first showed signs of crisis, most newspapers didn’t even have a picture of the broker.
However, things changed after his famous Millennium Bash (New Year 2000) at his luxurious beachfront villa in Mandwar, on the coast of Mumbai. The party was packed with top businessmen, fund managers and Bollywood socialites. The guests first gathered at the Sea Lounge restaurant of the Taj Mahal Hotel for a champagne reception and were then escorted to his villa by a highly secure ferry. The party was reported on the front pages of many tabloids. After that, Khaitan bought a fleet of luxury cars, including a Cadillac and a Lexus (like Harshad’s). He is admired by a wide range of celebrities, from Bollywood superstars such as Amitabh Bachchan to global tycoons such as Kerry Parker. Khaitan reportedly became good friends with Mr. Bachchan after he turned Amitabh Bachchan Limited (a company on the verge of bankruptcy) into a profitable company. Later, Mr. Parekh began to appear on the front pages of business newspapers, expressing his views on the union budget and other finance-related topics. The newspaper also reported that Khaitan was forming a joint venture with Indian businessman Vinay Maru and Australian tycoon Kerry Packer.
Ketan Parekh with Vinay Maloo and Kerry Packer
Scam exposed
In the late 1990s, the world economy was going through a tough time. Excessive speculation by internet trading companies led to the market crash in 2001, popularly known as the dot-com bubble. KP, like the rest of the world, was caught in the tech bubble. On March 1, 2001, two days after the Union Budget was passed, the Bombay Stock Exchange Sensex index plunged 176 points, prompting the then NDA government to launch an investigation into the market crash. Being a major player in the stock market, KP’s trading came under scrutiny. The Reserve Bank of India found his payment slips suspicious, which he had pledged as collateral for bank loans; an investigation was launched against Mr. Parekh. At the same time, a beer cartel in Kolkata dumped its holdings of K-10 shares, triggering a payment crisis. KP and other brokers who held shares in his name sold a large number of K-10 shares after the normal trading hours of the Kolkata Stock Exchange. This led to another drop of 149 points in the Sensex index.
Ketan Parekh scam triggered stock market crash
as a result of
The scam led to the loss of wealth and bankruptcy of Ketan and his followers. According to the SFIO (Serious Fraud Investigation Office) report, the amount involved in the scam is estimated to be between Rs 30,000-40,000 crore. CBI arrested Ketan on March 30, 2001, accusing him of defrauding Indian banks of Rs 13.7 billion and detained him for 53 days. The scam prompted SEBI to fix the loopholes in the system. The trading cycle was reduced from a week to a day. Operators were prohibited from continuing to trade. The control of brokers over various stock exchanges was weakened.
Ketan Parekh arrested by CBI
Trial and sentencing
A 30-member joint parliamentary committee was formed to investigate Ketan Parekh’s role in the 2001 financial scam. The committee found Mr. Parekh guilty of circular trading. Another report by the Intelligence Bureau implicated Ketan Parekh in manipulating the share prices of Dewan Housing Finance, Goenka Diamond, Orchid Chemical, IVRCL, GMR Infra, Pantaloon Retail, TBZ IPO, KS Oils, and others. Ketan was subsequently banned from stock trading until 2017 for illegal stock market manipulation. Ketan was sentenced to two years in prison by a special CBI court in March 2014 for fraud, according to The Economic Times. In 2018, a fast-track court sentenced him to three years in prison for violating the SEBI Act. Later, the Bombay High Court suspended his sentence and granted him bail.
Ketan Parekh sentenced to two years in prison
The Ketan Parekh show continues
Although KP publicly distanced himself from the stock market, a 2009 SEBI report stated that Ketan was still active in the stock market with the help of many stockbrokers who traded on his behalf. This led to SEBI banning 26 companies from the stock market for violating the SEBI Act.
Categories: Biography
Source: HIS Education