Ketan_Parekh

8/2/2019 Ketan_Parekh

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GROUP 4: ANANT SINGHMAYUR VARTAKSWATI SHARMA

DHWANI DAVENITIN YADAV

VIKRAM SINGH BHATI

Ketan Parekh Scam


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THE RISE OF THE BULL


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Introduction

C.A by profession-comes from broking familybackground.

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.


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In both these scams, banks were involved.

In both these scams, promoters of companies and

certain close cronies were involved.

Harshad Mehta

The controversy was related

to bankers receipts

He operated through a closenetwork of brokers

The State Bank of Indiasuffered the loss of Rs. 660

crore

Favorite stocks of HarshadMehta were Old Economy

Ketan Parekh

It was pay order in the Ketan

Parekh scam

While he had a wider networkof brokers, even those located

in Calcutta.

Owes around Rs 130 crore tothe Bank of India.

While he was playing withNew Economy


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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


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THE FUNDING OF HIS SCAM

KP issuedcheques drawnon BoI (Bankof India) to

MMCB(MadhavapuraMercantileCooperativeBank)

Cheque

Against

cheques,MMCB issuedpay orders.

Payorder The pay orderswerediscounted atBoI.

Money


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BORROWING FROM MMCB:

The second route was borrowing from aMadhavapura Mercantile Cooperative Bank MMCB

branch at Mandvi (Mumbai)


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Ketan borrowed Rs 250 crore from Global TrustBank 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).


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When the BEARS roared

The mode of raisingworked well but Only tillthe prices of shares wentup but it reversed when

shares started fallingfrom march 2000.

The crash was a result offall at NASDAQ that saw

a fall in K-10 stock aswell.

In next 2 months, sensexdeclined by 23% and K-

10 stock declined by 67%


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THE FINAL TURN AROUND

The CSE had payment crises main reasonsare:

Stocks held by KP and his broker were

reduced to 6-7 bn from 12bn

Situation worsened when KPs badlapayment was not honored and 70 CSEbrokers along with top 3 brokers madedefault

By mid March the value of shares went to2.5-3 bn.

In Dec.2000 theNASDAQ fell back againand the KP stocks wentdown as the prices of

stock falling globally KP faced liquidity

problems


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THE DOWN FALL

Heavy selling of KP Stocks.

MMCB offloading the shares


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KPs brokersstarted pressuringhim for payment.

SEBI tricked theregulatory normsand several otherrules were framed .

Finally KP wasarrested.


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MEASURES TAKEN

As SEBI investigated, it was evident that bank andpromoter funds were used to rig the markets. In theaftermath of the scam, many gaping loopholes in themarket were plugged.

The trading cycle was now reduced from one week to oneday

Badla was banned and operators could not carry forwardtrade in its primitive form.

Forward trading was formally introduced in the form ofexchange-traded derivatives to ensure a well-regulatedfutures market.

Broker control over stock exchanges was demolished.


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RECOMMENDATIONS

The scam opened up the debate over banks fundingcapital market operations and lending funds againstcollateral security. Hence need of strong reforms.

The difficulties in tracing such scams by SEBI can besolved by strict regulation backed up with continuouschecks

Small investors which tend to fall in trap of such brokerscan be protected by providing some securities, whichotherwise leads to social imbalance by suicides etc.

Avoidance of herd behavior, however difficult to control

Political mayhem needs to be controlled which supportsthe root of such scams.


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Ketan_Parekh

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