The Ketan Parekh Scam: SEBI's Hunt for ?65 Crore Fraud

by Uttam Kumar

Ketan Parekh, known for his 2001 stock market scandal, pulled off another smart scheme that went unnoticed. Using secret messages, insider information, and a network of hidden allies, he once again manipulated the market to pocket massive profits.?

But, the Securities and Exchange Board of India (SEBI) wasn’t going to let him get away.?

So, how did Parekh pull off such a massive scam? And what eventually exposed this scam?

Let’s break it down.

Key Characters Involved

• Ketan Parekh: The mastermind who got Non-Public Information (NPI)? through his associate, Rohit Salgaocar. Parekh used this information to plan and control trading strategies across several accounts and entities.
• Rohit Salgaocar: Based in Singapore, he is a consultant for a foreign portfolio investor. He acquired NPI from the Big Client's traders through Bloomberg chats and calls, gaining insights into impending trades. Salgaocar passed this information to Ketan Parekh, enabling front-running trades.
• Facilitators: These included entities such as GRD Securities and Salasar Stock Broking, as well as individuals like Ashok Poddar, who helped execute Parekh’s instructions.

SEBI’s investigation uncovered this intricate network of brokers, shell companies, and individuals, each fulfilling a specific role in enabling Parekh’s operations. This meticulous probe revealed how Parekh orchestrated his scam, turning non-public information into substantial unlawful profits.

The Background of the Scam

The Ketan Parekh scam involved a sophisticated scheme of front-running, where key players misused non-public information (NPI) regarding large transactions by a major foreign portfolio investor, referred to as the "Big Client."?

Ketan Parekh orchestrated the operation, leveraging insider information from Rohit Salgaocar which was passed down to his direct brokers and firms who execute trades ahead of these significant market transactions on Parekh’s behalf.

Parekh’s network included six key front-running entities (FRs), such as GRD Securities and Salasar Stock Broking, which executed trades based on his instructions.?

Additionally, Shell companies like APR Properties and Basukinath Properties were used to carry out trades based on secret information, helping Ketan Parekh and his team hide their activities and profits while running their illegal trading scheme.

How SEBI connected the dots

Investigations by SEBI revealed that Salgaocar obtained sensitive trading information (NPI) from the Big Client and passed it to Parekh. Parekh then gave trading instructions through WhatsApp chats and calls, using fake names like "Jack" and "Boss" to hide his identity.?

Here’s how SEBI connected the dots through a detailed investigation, tracking phone records, IP addresses, devices, and recovering WhatsApp chats that exposed the scam.?

Suspicious Trading Patterns: SEBI observed unusual trading activity involving certain entities that consistently made profits by trading just before or simultaneously with the trades of major foreign portfolio investors. This pattern of activity suggested the possible use of non-public information (NPI).

Profit Analysis: SEBI Compared profits and trade volumes of entities before and during the scam period, revealing significant unlawful gains from these trades.

Search and Seizure Operations: SEBI conducted searches at 17 locations, including offices and residences of the involved parties. During these searches, SEBI gathered documents, electronic evidence, and trading records.

SEBI’s Findings: SEBI matched phone numbers, IP addresses, and devices to Ketan Parekh’s suspicious trades and recovered WhatsApp chats in which pseudonyms like "Jack" were used to share trading instructions based on Non-Public Information (NPI).

Broker Agreements: SEBI discovered agreements between Rohit Salgaocar and brokers, where Salgaocar earned commissions by routing Big Client's trades through specific brokers while sharing NPI with Ketan Parekh.

Counterparty Misdirection: SEBI discovered that Parekh and Salgaocar misled a large investor, the "Big Client," by arranging trades in advance with specific parties. These trades appeared to be regular market transactions but were pre-planned, allowing them to profit personally.

Conclusion

The Ketan Parekh scam is a clear reminder of how financial markets can be misused. SEBI's efforts to uncover this complex case of insider trading and front-running highlight the importance of advanced technology and strong investigations in keeping markets fair.?

By taking action against Parekh and his network, SEBI restored trust among investors and set an example for future cases. This case shows one thing clearly, no matter how smart the scam, regulators will always find a way to uncover it.

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