Ketan Parekh is an unforgettable name in the world of Indian stock markets. He was a former stockbroker who would soon become the center of a scandal that shook the entire nation. The Securities Exchange Board of India, or SEBI as it was known, found him guilty of market manipulation and insider trading. This would tarnish his name and forever change his life. But do we all know the entire truth? Read this article to know everything related to the 2001 Stock market crash.
Born in 1963, Ketan Parekh came from a family of stockbrokers and CPAs. His father, Vinaychandra N., introduced him to the volatile world of stocks at a young age. After becoming a chartered accountant, Ketan joined Narbheram Karakchand Securities, a reputable institutional brokerage firm.
But why did people believe in Ketan Parekh? He was like the Pied Piper of Dalal Street, the nickname given to the bustling financial district in Mumbai. His every move was closely followed by market players because everything he touched turned into gold.
With his family background in brokerage, Ketan started his own trading network and made the most of the technological bubble that engulfed the stock market between 1999 and 2000. During this time, Ketan Parekh’s favorite stocks, known as the K-10 stocks, were soaring. These stocks were named after the companies he favored, such as Global Trust Bank, Aftek Infosys, SSI Pentamedia Graphics, and many more. The “K” in K-10 represented Ketan, and the number 10 denoted his ten favorite stocks.
Now, let’s uncover the truth behind the infamous Ketan Parekh scam. His first move was to purchase substantial holdings from promoters at significant discounts. Then, he turned his attention to institutional investors, relying on a positive outlook for the stock market. To boost the market, Ketan needed three essential components: stocks, the stock exchange, and money.
Following the security upgrades at the Bombay Stock Exchange (BSE) after the 1992 Securities Scam, Ketan Parekh turned to the Kolkata Stock Exchange, which had lax regulations. He carefully selected his stocks based on specific criteria: they had to be young companies with promising future prospects, small market capitalization, and low trading volumes. His stock portfolio heavily focused on the technological, communication, and entertainment sectors, also known as the ICE sector.
To fund his operations, Ketan used his own money and obtained loans from financial institutions like Global Trust Bank and Madhavpura Mercantile Cooperative Bank (MMCB). He even bought shares of MMCB.
However, the Ketan Parekh scam did not go unnoticed. He was charged with insider trading and making false statements to defraud banks. Ultimately, he was found guilty of market manipulation and was prohibited from trading. The Reserve Bank of India revoked MMCB’s license in 2012, and Global Trust Bank merged with Oriental Bank of Commerce in 2004.
Legal proceedings continued, and Ketan Parekh faced the consequences of his actions.
In the case of Sebi v. Ketan V. Parekh and Others (2003), he was found guilty of violating SEBI regulations and insider trading regulations. In the case of Securities and Exchange Board of India v. Panther Fincap and Management Services Limited and Ors (2018), he was sentenced to three years in prison and ordered to pay a fine and compensation.
Interestingly, the Ketan Parekh scam played a significant role in the modernization of the Indian stock market. The market collapse exposed loopholes in the system and pushed for urgent reforms. The incident led to the implementation of stricter laws and procedures to prevent such manipulations by stockbrokers and traders.
Now, the question arises: Is Ketan Parekh a hero or a villain? While many labeled him a fraud, it is essential to consider the broader context. Stock market trading has its own set of practices, and without addressing the loopholes in the system itself, it is challenging to single out one individual as a scammer.
Ketan Parekh had a network of discreet supporters who silently funded him and offered assistance. During that time, politicians, businesspeople, conglomerates, and institutional investors all made money and considered him a hero. However, when the scandal surfaced, Ketan became the sole target and was suddenly portrayed as a villain.
It’s worth noting that if Ketan Parekh were a true con artist, he might have followed the footsteps of other fraudsters like Nirav Modi, Lalit Modi, and Vijay Mallya, who defrauded people and fled to London. However, Ketan Parekh faced the consequences of his actions within the Indian legal system.
As the online contents say this was a scam of 40,000 cr, which is completely a baseless statement because during 2001 even the whole stock market’s valuation was not this huge! The biggest stock market scam that India has seen, the Harshad Mehta Scam is itself of 5000 Cr.
Calculating the approximate amount involved, there’s no way for this scam to be anything more than 1000 Cr. Also, there’s no way for any human to conduct this type of scandal single-handedly, The names of government officials, politicians, businessmen and celebrities who were also involved in this scam never came out.
In the end, it is a matter of perspective whether Ketan Parekh should be seen as a hero or a villain. While he did commit scams, it is essential to recognize that his competitors, who had long clamored for their monopoly in the market, played a significant role in driving him out. Short-selling, a commonly practiced trading tactic, can also be seen as a scam in some ways. Ketan Parekh was targeted excessively by a few real con artists, while others made fortunes through similar practices.
The Ketan Parekh scam served as a wake-up call for the Indian stock market, leading to reforms and stricter regulations. It remains a significant chapter in the history of Indian finance, reminding us of the importance of transparency and accountability in the world of stocks and investments.
