FINANCIAL ACCOUNTING

KETAN PAREKH SCAM

P R E S E N T E D B Y,
N I K H I L T H A K U R V I D H I PA H A D E B I N I L A B A B U P O O J A N A G A R S A M E E R S H I R K E S A N J AY J A I N

50 51 22 25 44 40

Who is Ketan Parekh ?

y CA by profession. y Learned Stock market with a finance firm Money care y Inherited ownership of NH Securities. y Also known as Bombay Bull and Pentafour Bull.

y Used online trading to achieve his goals. y Started manipulation with buying penny stocks. y Build a network of companies for stock market operation.

Commencement

 Aftek Infosys --- Increasing stocks from Rs 40 levels to

Rs 2400 levels.
 Pentafour

--- Loss in stock due to bad publicity, Parekh entered and pulled it up.

 Ranbaxy

--- Initially stock raised from Rs 500 to Rs 750 and declined to 550.

Cont..

 Ranbaxy

--- After KP entered ,stock raised to Rs 1,264.

 Visual soft

--- raised from Rs. 625 to Rs. 8448.

 Sonata soft

--- raised from Rs. 90 to Rs. 2150.

The K-10 Stocks

y Stocks in which Ketan Parekh Played. y Mostly media stocks with low liquidity. y Ketan Parekh traded in these stocks with fictitious names. y He operated through small stock exchanges like KSE.

 Satyam Computers.  Himachal Futuristic .  SSI Ltd.  HFCL.  Global Tele systems (Global).  Zee Tele films.  Ranbaxy.  Penta Media Graphics.  Visual soft.  DSQ Software.

Stock movement of some K-10 Companies

9000 8000 7000 6000 5000 4000 3000 2000 1000 0 Aftek Infosys Ranbaxy Visual soft Sonata soft Before After

The Scams..
y Loans were taken from banks to start the scam.

y The banks included

GLOBAL TRUST BANK. BANK OF INDIA. UNIT TRUST OF INDIA (UTI). MADHAVPURA MERCANTILE COPERATIVE BANK. STATE BANK OF INDIA.

Ketan issued cheques drawn on Bank of India to MMCB.

MMCB issued pay orders against those cheques.

These pay orders were discounted at Bank of India around 2400 crores.

MMCB issued funds to Ketan Without proper securities.

 Creation

of fake companies.

 Borrowed

from MMCB branch at Mumbai.

 Rs

120 crore securities scam at the Calcutta Stock

Exchange

How Ketan ran out of Luck ???

y A team of traders insisted to sell all K-10 stocks. y This leads to fall of prices of K-10 stocks. y In order to save K-10 stock prices ketan invested all illegal

money.
y Still selling trend continues and ketan lost all the money.

How Ketan got Exposed ???

y Sucheta Dalal, was the first to expose his scams through her

news columns.
y After defaults of pay orders BOI launched complain against

Ketan.
y Ketan got arrested by CBI.

Aftermath
y BSE index crashed by around 1ooo points within a week. y MMCB got bankrupted. y Total loss in banking sector = Rs. 1200 crores. y Ketan Parekh still owes Rs. 13o crores to Bank of India. y Ketan Parekh released on bail.

y he has been debarred from trading in the Indian stock

exchanges till 2017.

y Parekh's sole conviction, which carried a one year sentence,

came as a result of a transaction he conducted involving a unit of Canara bank.

y Ketan Parekh is rumored to be still trading under different

companies.

Damage Control By SEBI

y

All the broker directors of Bombay and Kolkata stock exchange were fired. All brokers acting as directors and other office bearers of the Bombay Stock Exchangehave been suspended for alleged insider trading. In order to prevent misuse of sensitiveinformation by broker-directors, stock markets will be corporatized soon Placed enquiry on team of competitor traders for their short selling.( On March 8, 2001, the SEBI banned naked short sales. In simple words, it means that all short sales have to be covered by an equal amount of long purchases) all the trading details now has to be submitted daily. In order to increase liquidity, SEBI has allowed banks to offer collateralized lending only through BSE and NSE. Please deal only with and through SEBI registered members of the Stock Exchange and are enabled to trade on the Exchange. All SEBI registered members are given a registration No., which may be verified from SEBI. The details of all members of NSE/BSE and whether they are enabled to trade may be verified from NSE/BSE website . INVESTIGATE UNUSUAL PRICE MOVEMENT OF SHARES

y y

What should be done to avoid scams???

y Regular inspection from RBI.(RBI was inspecting the account once in two

years, which created ample scope for violation of ruler)

y Strengthening norms and regulations.(

Lack of implication of rules and regulation. Rolling settlements (which ensures that the settlement takes place two days after trading) will now be compulsory)

 Coordination of RBI and SEBI. (A SEBI-RBI constituted committee would

meet periodically to sort out issues, if any, arising out of overlapping jurisdiction of the currency futures market. )

 Empowering SEBI and investing

Regular inspection from RBI.To provide license to dealers and brokers. It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market. It can impose the penalties on capital market intermediaries if they involve in insider trading. SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges. Time to time, SEBI arranges scheduled workshops to educate the investors. On 22 may 2010 SEBI imposed workshop. If you are investor, you can get education through SEBI leaders by getting update information on this page

Strengthening norms and regulations. Coordination of RBI and SEBI.(to maintain the flow of economy by rbi and sebi to maintain transperancy in trading.) Empowering SEBI.