KETAN PAREKH SCAM

By S.VIGNESH Reg No:112071121

Summary of the case

The 176-point sensex crash on March 1,2001 SEBI to launch immediate investigations into the volatility of stock markets. The scam shook the investor s confidence regarding the share markets. He was charged with defrauding BOI of about $30 million. Arrested on March 30,2001 was followed by another sensex fall by 147 points.

The Man Who Trigerred the Crash

Formed a network of brokers from exchanges like the ASE and the CSE Purchase share in the name of poor people living in the shanty towns of Mumbai Rs 250 crore loan from Global Trust Bank, through Global Trusts Chairman Ramesh Gelli Rs 1,000 crore from the Madhavpura Mercantile Co-operative Bank The companies in which KP held stakes included Amitabh Bachchan Corporation Limited (ABCL), Pritish Nandy Communications, HFCL, Aftek Infosys, Padmini Polymer, Lupin Laboratories,Global Telesystems (Global), Zee Telefilms, Crest Communications, and Penta Media Graphics .

Contd
In July 1999, KP controlled around 16% of Global's floating stock, 25% of Aftek Infosys, and 15% each in Zee and HFCL. The buoyant stock markets from January to July 1999 helped the K-10 stocks increase in value substantially. Mutual funds like Alliance Capital, ICICI Prudential Fund and UTI also invested in K-10 stocks, and saw their increased NAV. By January 2000, K-10 stocks regularly featured in the top five traded stocks in the exchanges. As such huge amounts of money were being pumped into the markets, it became tough for KP to control the movements of the scrips.

The Factors that Helped KP

His financing methods were fairly simple. A small Ahmedabad-based bank, Madhavapura Mercantile Cooperative Bank (MMCB) provided main assistance in the scam. In Dec 2000, when KP faced liquidity problems in settlements he used MMCB in two different ways. 1)KP issues cheques drawn on BOI to MMCB, against which MMCB issued pay orders. 2)Borrowing from a MMCB branch at Mandvi (Mumbai) Global Trust Bank (GTB) issued loans to KP of 250 crores.

Aftermath of the Scam

Soon after discovery of this scam,the prices of these stocks came down to the fraction of the values at which they were bought. Few people in India lost their savings heavily . The Global Trust Bank and the Madhavpura Cooperative went bust. During investigation of the scam revealed that IDBI Bank and IFCI had extended loans of Rs 1,400 crores to companies known to be close to broker Ketan Parekh. Ketan Parekh was later arrested on December-2,2002 in kolkata.