Sucheta Dalal: Women who exposed the biggest scams in the stock market

Greetings, folks!?

On Women's Day, let's shine a spotlight on a woman whose grit, tenacity, and investigative prowess have reshaped the landscape of financial journalism in India.?

Meet Sucheta Dalal—a name synonymous with uncovering some of the most intricate financial scandals that rocked the nation.

You know, when I first started my investment writer, I questioned the significance of my role.?

However, when I watched? "Scam 1992." in 2020, things changed entirely.

While the world marveled at the charisma of Harshad Mehta, my admiration gravitated towards Sucheta Dalal's unwavering pursuit of truth.

A lot of you might know her as a journalist who exposed Harshad Mehta but what you don’t? know is that from IDBI to NSE, she has exposed the biggest names in the nation and saved lakhs of retail investors.

Let’s delve deeper into her story of relentless pursuit of truth.

The Early Days of Sucheta Dalal

Sucheta's journey in journalism began in 1984 with Fortune India, where she embarked on a mission to unravel the complexities of India's financial markets.?

Over the years, she worked with esteemed publications like Business Standard and The Economic Times before assuming the role of Financial Editor at The Times of India.?

Today, she continues to champion transparency and accountability as the Consulting Editor for MoneyLife, an online financial magazine she co-founded with her husband.

The Harshad Mehta Scam: A Turning Point

The Harshad Mehta scam, one of India's biggest financial scandals, sent shockwaves through the country's financial system. Sucheta's investigation revealed the depth of Mehta's fraud, prompting significant reforms in stock transactions.?

Her exposé, published in The Times of India in April 1992, brought the scam to light and exposed the loopholes in India's financial security system.

Mehta's modus operandi involved exploiting systemic loopholes to siphon funds from the banking system into the stock market. He manipulated stock prices and engaged in large-scale securities transactions, causing a sharp fall in share prices and significant losses for investors. Sucheta's meticulous investigation unearthed the extent of Mehta's fraudulent activities, leading to widespread public outrage and calls for regulatory reform.

Beyond the Harshad Mehta Scam: Sucheta's Continued Pursuit of Justice

But Sucheta's contributions extend far beyond the Harshad Mehta scandal. She has been a relentless crusader for justice, shedding light on a multitude of financial irregularities plaguing India's markets.?

From the Enron scam to the Industrial Development Bank of India scam, her work has exposed the rampant corruption and lack of oversight in the financial sector. Let’s discuss some of the cases she uncovered.

The NSE Co-location Scam: Unraveling the Web of Deceit

In January 2015, an unassuming brown envelope landed on Sucheta Dalal's desk, setting off a chain of events that would expose a tangled web of deceit within India's financial markets.?

Inside was a letter signed by an anonymous whistleblower, "Ken Fong." This letter would become the catalyst for unveiling a sophisticated market manipulation operation lurking within the National Stock Exchange (NSE), India's largest stock exchange.

The letter detailed a complex scheme operating at NSE's Colo facility, which was hastily established by NSE in 2010 without proper regulatory oversight. The facility allowed brokers to place their servers right next to NSE's, giving them a significant edge in accessing price data milliseconds before others.

This controversy, known as the "NSE algo trading scam" or "High Frequency Trading (HFT) scam," focused on the advantage gained by colocation brokers. Although not strictly categorized as algo trading or HFT, colocation, combined with fast access to order books and sophisticated algorithms, facilitated lucrative trades for brokers.

The issue escalated in December 2009 when NSE began offering colocation members tick-by-tick (TBT) data, providing detailed insights into buy and sell orders. Regular brokers received only a snapshot of market activity, while colocation brokers could view every order and modification in real-time.

This depth of information enabled some brokers to manipulate prices by exploiting flaws in NSE's data dissemination protocol. Data was served on a first-come, first-serve basis, allowing brokers who logged in first to maintain an advantage throughout the trading day.

Allegedly, some brokers, with the help of NSE insiders, capitalized on this flaw by accessing servers with the least load and commencing trading first in the morning. Despite NSE's efforts to address the issue with load balancers and protocol upgrades, some brokers continued to exploit the system.

The true scale of the scam remains unclear, as implicated brokers likely divided orders across multiple entities to evade detection. Whistleblowers suggest that involved parties could have raked in between Rs 50-100 crore daily.

SEBI has taken action against some brokers, banning OPG Securities for five years and imposing fines. However, the case remains unresolved, with lingering questions surrounding the involvement of former NSE executives, including Ravi Narain and Chitra Ramkrishna, during the period of irregularities.

“When I first reported the Colo scam on 19 June 2015 (Blowing the Whistle on Manipulation in NSE) NSE slapped us with a Rs100 crore defamation case which it withdrew in 2017 after paying Rs50 lakh fine. (NSE withdraws its Rs100 crore defamation suit against Moneylife, pays Rs50 lakh as cost and penalty). It is then that SEBI reluctantly began to investigate the issue.

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This was confirmed in February 2023, when SAT questioned the regulator’s casual attitude, even as it threw out the bulk of SEBI’s findings. The order expressed surprise at how SEBI had repeatedly asked NSE to investigate itself and turned serious about the investigation only when questions were asked in Parliament.” wrote Dalal in a blog post.

This episode underscores the importance of transparency and regulatory oversight in financial markets. Sucheta Dalal's role in uncovering this scam demonstrates the vital role of investigative journalism in holding institutions accountable and safeguarding investor interests. Her unwavering pursuit of truth has earned her recognition and praise, making her a symbol of integrity and courage in India's financial landscape.

Ketan Parekh Scam

Most notably, Sucheta's involvement in uncovering the Ketan Parekh scam of 2001 deserves recognition. Parekh, a protege of Harshad Mehta, emulated his mentor's tactics to manipulate stock prices and inflate trading volumes.?

While many are familiar with her exposé of the infamous Harshad Mehta scam, her role in uncovering Parekh's nefarious activities remains lesser-known but equally significant.

Ketan Parekh, a Chartered Accountant by profession, ventured into the stock market world through NH Securities, his family's brokerage firm. Later, he joined Harshad Mehta's company, where he observed market dynamics and learned manipulation tactics. Despite his unassuming demeanor, Parekh cultivated connections across various sectors, including politics, entertainment, and business.

Parekh's scam mirrored Harshad Mehta's infamous "Pump and Dump" strategy. He utilized bank funds to artificially inflate stock prices, particularly targeting Information, Communication, and Entertainment (ICE) sector companies during the dot-com boom.

His modus operandi involved enticing institutional investors through circular trading schemes. By executing coordinated buy and sell orders among brokers, Parekh created the illusion of high trading volumes. He focused on IT, media, and telecom stocks, earning them the moniker "K10 Stocks." These stocks experienced dramatic price surges, leading to substantial profits for Parekh and his associates.

However, Parekh's unchecked ambition proved to be his undoing. Seeking to expand his operations, he illicitly raised funds from company promoters and secured unauthorized loans from banks. These actions violated regulatory norms and attracted scrutiny from authorities.

Journalist Sucheta Dalal uncovered Parekh's fraudulent activities, triggering chaos in the stock market and exposing his misdeeds to the public. The revelation led to Parekh's arrest and subsequent legal actions, including a ban from trading until 2017.

“One would rightly call him the inheritor of the Harshad Mehta tradition. Exactly eight years after the flamboyant Harshad Mehta was trapped in India's biggest financial scandal, it has happened all over again.

On March 30, 2001, the Central Bureau of Investigation (CBI) arrested Ketan Parekh in connection with a Rs 1.37-billion loss to Bank of India on account of the default of a tiny Ahmedabad-based co-operative bank.

One the face of it, Ketan Parekh's modus operandi is identical to that of Mehta. He used the same formula of tapping bank funds to play the stock markets and ramp up stock prices, but only after a clear collusive deal with the company management, which included handing over a substantial chunk of the equity to the stockbroker to create liquidity in the scrip.” wrote Dalal in an old blog.

Through her courageous journalism and steadfast pursuit of justice, Sucheta Dalal continues to inspire and uphold the values of transparency and accountability in the financial world. colades, including the Padma Shri, one of India's highest civilian honors. She has also been awarded the Chameli Devi Award for excellence in journalism and the Femina’s Woman of Substance Award for her work on the Harshad Mehta scam in 1992.?

In addition to her journalistic endeavors, Sucheta has served as a member of the Investor Protection and Education Fund and the Primary Market Advisory Committee of the Securities and Exchange Board of India, demonstrating her commitment to safeguarding investor interests and promoting financial transparency.

In Conclusion

In conclusion, Sucheta Dalal's journey to justice is a testament to the power of investigative journalism in exposing financial malpractice and safeguarding investor interests. As we celebrate Women's Day, let us honor Sucheta and her unwavering commitment to truth and transparency in India's financial markets. Her tireless efforts have not only brought perpetrators of financial fraud to justice but have also catalyzed significant regulatory reforms, ensuring a more transparent and accountable financial system for future generations.