Ketan Parekh Scam

GROUP 4: ANANT SINGH MAYUR VARTAK SWATI SHARMA DHWANI DAVE NITIN YADAV VIKRAM SINGH BHATI

THE RISE OF THE BULL

Introduction
C.A by profession-comes from broking family

background. Popularly known as the Pentafour Bull Known for his K10 series of stocks. Ketan Parekh followed Harshad Mehta's footsteps to swindle crores of rupees from banks. A chartered accountant he used to run a family business, NH Securities.

Harshad Mehta
The controversy was related to bankers receipts
He operated through a close network of brokers The State Bank of India suffered the loss of Rs. 660 crore Favorite stocks of Harshad Mehta were Old Economy

Ketan Parekh
It was pay order in the Ketan Parekh scam While he had a wider network of brokers, even those located in Calcutta. Owes around Rs 130 crore to the Bank of India. While he was playing with New Economy

In both these scams, banks were involved. In both these scams, promoters of companies and

certain close cronies were involved.

THE K-10 STOCKS

Amitabh Bachchan Corporation Limited (ABCL)

Mukta Arts
Tips Pritish Nandy Communications.

HFCL
Global Telesystems (Global) Zee Telefilms

Crest Communications
PentaMedia Graphics

THE FUNDING OF HIS SCAM

KP issued cheques drawn on BoI (Bank of India) to MMCB (Madhavapura Mercantile Cooperative Bank)

Payorder
Against cheques, MMCB issued pay orders.

The pay orders were discounted at BoI.

Cheque

Money

 BORROWING FROM MMCB:

The second route was borrowing from a Madhavapura Mercantile Cooperative Bank MMCB branch at Mandvi (Mumbai)

 Ketan borrowed Rs 250 crore from Global Trust

Bank to fuel his ambitions. Ketan alongwith his associates also managed to get Rs 1,000 crore from the MMCB. According to RBI regulations, a broker is allowed a loan of only Rs 15 crore (Rs 150 million).

When the BEARS roared

The mode of raising worked well but Only till the prices of shares went up but it reversed when shares started falling from march 2000.

The crash was a result of fall at NASDAQ that saw a fall in K-10 stock as well.

In next 2 months, sensex declined by 23% and K10 stock declined by 67%

THE FINAL TURN AROUND

In Dec.2000 the
The CSE had payment crises main reasons are:

Stocks held by KP and his broker were reduced to 6-7 bn from 12bn Situation worsened when KPs badla payment was not honored and 70 CSE brokers along with top 3 brokers made default By mid March the value of shares went to 2.5-3 bn.

NASDAQ fell back again and the KP stocks went down as the prices of stock falling globally KP faced liquidity problems

THE DOWN FALL

Heavy selling of KP Stocks.

MMCB offloading the shares

KPs brokers started pressuring him for payment. SEBI tricked the regulatory norms and several other rules were framed . Finally KP was arrested.

MEASURES TAKEN
As SEBI investigated, it was evident that bank and

promoter funds were used to rig the markets. In the aftermath of the scam, many gaping loopholes in the market were plugged. The trading cycle was now reduced from one week to one day Badla was banned and operators could not carry forward trade in its primitive form. Forward trading was formally introduced in the form of exchange-traded derivatives to ensure a well-regulated futures market. Broker control over stock exchanges was demolished.

RECOMMENDATIONS
The scam opened up the debate over banks funding

capital market operations and lending funds against collateral security. Hence need of strong reforms. The difficulties in tracing such scams by SEBI can be solved by strict regulation backed up with continuous checks Small investors which tend to fall in trap of such brokers can be protected by providing some securities, which otherwise leads to social imbalance by suicides etc. Avoidance of herd behavior, however difficult to control Political mayhem needs to be controlled which supports the root of such scams.