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Ketan Parekh Scam

Ketan Parekh was a stockbroker who orchestrated a major scam in the Indian stock market in the late 1990s. He learned stock trading from Harshad Mehta, who was behind an earlier major scam. Parekh manipulated stock prices and accepted money from company promoters to artificially inflate share prices, amounting to insider trading. He also embezzled large sums from Madhavapura Mercantile Commercial Bank through loans for speculative trading. When a bear cartel started driving stock prices down, Parekh was unable to repay loans and brokers were forced to liquidate positions, causing investor losses of Rs. 2000 crores. Parekh was arrested and banned from trading for 15 years, but rumors persisted

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52 views

Ketan Parekh Scam

Ketan Parekh was a stockbroker who orchestrated a major scam in the Indian stock market in the late 1990s. He learned stock trading from Harshad Mehta, who was behind an earlier major scam. Parekh manipulated stock prices and accepted money from company promoters to artificially inflate share prices, amounting to insider trading. He also embezzled large sums from Madhavapura Mercantile Commercial Bank through loans for speculative trading. When a bear cartel started driving stock prices down, Parekh was unable to repay loans and brokers were forced to liquidate positions, causing investor losses of Rs. 2000 crores. Parekh was arrested and banned from trading for 15 years, but rumors persisted

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rehan husain
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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The Ketan Parekh Scam

The Ketan Parekh scam was the second most important scam that rocked the Bombay
Stock Exchange after the Harshad Mehta scam. To make matters worse, Ketan Parekh was
himself a protégé of Harshad Mehta and had learned stock trading from the pied piper of
Bombay Stock Exchange himself. As a result, he was able to achieve a similar feat as
compared to what Mehta himself had accomplished.

When he was believed to be single handedly driving the stock market, Ketan Parekh had
created a 200% annual return on some stocks. The low profile Indian stock market was
suddenly once again making headlines all over the world. Later it turned out that it was
broker turned operator Ketan Parekh that was driving the market and not changes in the
fundamentals.

About Ketan Parekh


As already mentioned above, Ketan Parekh was a protégé of Harshad Mehta. However, in
his demeanor he was nothing like Mr Mehta. He was a soft spoken, unassuming guy that
you would mistake for being an average person on the street. However, in reality his
associates and competitors describe him as being particularly shrewd and ruthless. Unlike,
other brokers, there would be no build up or warning of Ketan Parekh’s moves. He would
take the market by storm and raise or drop the prices of stocks in an instant by suddenly
unleashing lots of money in the market.
He was a chartered accountant by professional training and had started managing his
family’s brokerage business. 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

The Illegalities
The problem with Ketan Parekh’s dealings was two-fold:

Firstly, he had been accepting money from the promoters of many companies to take their
share prices up. This can be seen as insider trading and by itself was enough to get Ketan
Parekh into severe trouble.
However, to top it up, Ketan Parekh had also embezzled large amounts of cash from the
Madhavapura Mercantile Commercial Bank (MMCB). He was believed to have bribed the
officials of the said bank to persuade them to lend against shares to a greater extent than
was permitted by law. At first, the bank crossed its prescribed limits to lend against market
securities as it extended credit to Ketan Parekh. Then, the bank basically started making
unsecured loans to him. The loans would be sanctioned first and the collateral would be
collected a few days later making the loans unsecured for the interim duration.

The Fallout
Ketan Parekh also conducted majority of his tradings in the Calcutta stock exchange (CSE).
The lack of regulation in this exchange provided more flexibility to Mr Parekh. He did not
trade on his account but instead instructed other brokers to hold securities and paid them a
commission to do so while making good any losses that they might have accrued on the
position.

However, as a bear cartel started hammering the K-10 stocks, Ketan Parekh found himself
locked out of cash. The MMCB bank was also not able to lend out credit and bail out Mr
Parekh. As a result, the brokers that were holding positions on his behalf in the Calcutta
Stock Exchange were forced to liquidate too causing a massive sell off in the market.
Investors lost money to the tune of Rs 2000 crores ($4 billion).

Ketan Parekh was immediately arrested and tried in court. He has been prohibited from
trading in the Bombay Stock Exchange for 15 years i.e. till 2017. Also, he had been
sentenced to one year rigorous imprisonment for his economic crimes.

There have been rumors in the Bombay Stock Exchange that Ketan Parekh still continues
trading from a network of unnamed corporations. In 2008, the regulators initiated a probe
into this and many companies were barred from trading in the exchange. However, the
extent to which such actions can stop the activities of Ketan Parekh is yet to be ascertained

submitted by
Rehan Husain
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