The share market is full of exciting success and scam stories. The Ketan Parekh scam was one significant scam that impacted the entire BSE just after the Harshad Mehta Scam. You may feel shocked when you hear Ketan was the protege of Harshad Mehta. He learned every aspect of the share market from Harshad Mehta. As a result, he also becomes one of the biggest stock market scammers in the Indian stock market history. In this crucial article, we will look at the Ketan Parikh scam in the Indian share market. So if you want to know about it, keep reading this entire blog which will explain hidden facts of the share market.
Who is Ketan Parekh?
Ketan Parekh used to belong from that family where they used to do stock trading as a family business. He learned stock trading from his father as it passed from him. He mentored Harshad Mehta to become a wise stock trader. And later, this man became responsible for the second biggest scam in the stock market, which shook the entire stock market.
By profession, he was a chartered accountant, and when he came into the stock market for trading, he soon became the bull of the market. Ketan kept performing each move efficiently and ruled the market for many years. With his success, he also started a venture startup with celebrities like Kerry Packer. He mainly used to invest in communication, information, and the entertainment sector. He created the list of top handpicked stocks from these sectors, which he called the K-10 stocks. All these stocks were performing bullish, and because of this, he ruled the stock market from 1999 to 2000.
Also Read: 6 Biggest Stock Market Scams in India
What Was The Main Allegation of Ketan Parekh Scam?
The Ketan Parikh scam mainly includes two things: The first is circular trading, and the second one is the pump and dump scheme.
Let’s understand both a little bit.
Pump and Dump: with this approach, he purchased 20% to 33% shares of the company. So that other investors think the company will do better and they can earn a good profit. And when investing, the price of shares tends to rise at a high rate. When the prices of purchased stocks skyrocketed, Ketan used to sell all those shares to a higher margin. As the prices of the shares artificially increased hence, they fall on some days naturally. This way of trading was risky, and average-level marketers used to have a considerable loss.
Circular trading is a way of trading where he used to purchase the shares with the help of amateur traders to increase the trade volume. And those investors who used to consider volume trading as the base to invest in a particular share. They used to attract and when they all showed their interest to purchase the shares. The prices significantly used to rise. He was making a good profit and paying a small commission to junior traders.
How Did He Collected Money From Banks and Executed This Big Scam?
At that time, he became a reputed trader in the stock market. To increase his earnings, he needed a considerable loan amount. Thus, he decided to purchase the shares of MMCB or Madhavpura Mercantile Commercial Bank to change some provisions of the loan offering and get the loan money quickly. When he purchased the share of this bank, the prices shot up, and after this, he pledged with other banks like UTI and HCF. From these banks, he gathered nearly 1.3 million pay order receipts. And in early 2000, his loan amount was calculated to 750 million. He collected a lot of loan money from banks, financial institutions, company owners, and many other people.
From the loan money, he invested in Himachal Futuristic, Satyam Computers, Silverline technologies, and other major listed companies of that time. With his investment, the per-share prices of Zee Telefilms reached Rs2330 from Rs127. And the prices of Visual soft were also affected, and its shares started trading at Rs8448. He gained around 200% of interest value from the investment. It is a considerable profit amount earned from his artificial trading.
As the upward shoot was not natural and the market started to collapse. Thus RBI and SEBI took quick action and started finding the person who did this. When RBI and SEBI saw he took an unusual loan and invested money to inflate the market artificially, they decided to arrest him. Police arrested him in 2000, and he spent over 52 days in custody. The share market collapsed, and investors faced over 2000 crores loss. He got banned from trading for the next 15 years by 2017 and got punished for imprisonment.
SEBI took fast actions and created several regulations and changed some rules too. It banned the Bdla and circular trading from the Indian stock market. It also guided by inspecting all the trading accounts once a year, and BSE and NSE started doing the same. Every year the stock market faces such scams, but after SEBI’s involvement, the scams are reducing but still exist. Hopefully, with the advancement of technology, the harmful way of trading will be minimized, and a healthy trading system will be more likely to stay with us.
Conclusion
In this article, we learned about the Ketan Parekh Scam, where we discussed his background. We also learned what allegations he faced and what scam he made in the stock market. The share market is one of the risky investment options where the Bullish trader rules the market sometimes. If the market grows naturally, then small traders also get sustainable benefits.
But if the prices of the shares are artificially increased, then both the small and big trader or investor has to bear the loss. Hence as a wise trader or investor in the market, you must look at the company background and do some personal calculations to verify whether the growth is natural or artificial. I hope you liked this exciting information and will surely share it with your friend to learn about it.