December 18, 2009 | UPDATED 09:14 IST

Ketan Parekh can best be described as the Pied Piper of Dalal Street. For two years, marketmen followed his
every action because all he touched turned to gold. Better known as the Pentafour Bull, he kept a low profile,
except when he threw a millennium bash that was attended by politicians, business magnates and film stars. A
chartered accountant by training, Parekh came from a family of brokers, which helped him create a trading ring
of his own. Between 1999 and 2000, as the technology bubble was engulfing the rest of the world, the stock
market in India sprang to life too.
Be it investment firms, mostly controlled by promoters of listed companies, overseas corporate bodies or
cooperative banks, all were ready to hand the money to Parekh, which he used to rig up stock prices by
making his interest apparent. In no time, scrips like Visualsoft rose from Rs 625 to Rs 8,448 per share and
Sonata Software from Rs 90 to Rs 2,150. But the vicious cycle of fraud did not end with price rigging. The
inflated stocks had to be dumped onto someone in the end, for which Parekh used financial institutions like the
UTI. But the party ended rather abruptly a day after the Union Budget was presented in February 2001. A bear
cartel started disrupting Parekh's party by hammering prices of the K-10 stocks, precipitating a payment crisis
in Kolkata.

As SEBI investigated, it was evident that bank and promoter funds were used to rig the markets. Parekh was
arrested in March that year and was in custody for 53 days. 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. It's perhaps thanks to the Pentafour Bull that India's stock markets are
today considered safe. And to his credit, Parekh forced lethargic policy-makers to institute reforms in the
financial system. He is, however, now suspected to be operating in the markets through conduits. Parekh will
remain a work-in-progress for regulators.

The Crash that Shook the Nation

The 176-point1 Sensex2 crash on March 1, 2001 came as a major shock for the Government of India, the
stock markets and the investors alike. More so, as the Union budget tabled a day earlier had been
acclaimed for its growth initiatives and had prompted a 177-point increase in the Sensex. This sudden
crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate
investigations into the volatility of stock markets. SEBI also decided to inspect the books of several
brokers who were suspected of triggering the crash.
Meanwhile, the Reserve Bank of India (RBI) ordered some banks to furnish data related to their capital
market exposure. This was after media reports appeared regarding a private sector bank 3 having
exceeded its prudential norms of capital exposure, thereby contributing to the stock market volatility. The
panic run on the bourses continued and the Bombay Stock Exchange (BSE) President Anand Rathi's
(Rathi) resignation added to the downfall. Rathi had to resign following allegations that he had used some
privileged information, which contributed to the crash. The scam shook the investor's confidence in the
overall functioning of the stock markets. By the end of March 2001, at least eight people were reported to
have committed suicide and hundreds of investors were driven to the brink of bankruptcy.
The scam opened up the debate over banks funding capital market operations and lending funds against
collateral security. It also raised questions about the validity of dual control of co-operative banks 4.
(Analysts pointed out that RBI was inspecting the accounts once in two years, which created ample scope
for violation of rules.
The first arrest in the scam was of the noted bull,5 Ketan Parekh (KP), on March 30, 2001, by the Central
Bureau of Investigation (CBI). Soon, reports abounded as to how KP had single handedly caused one of
the biggest scams in the history of Indian financial markets. He was charged with defrauding Bank of India
(BoI) of about $30 million among other charges. KP's arrest was followed by yet another panic run on the

bourses and the Sensex fell by 147 points. By this time, the scam had become the 'talk of the nation,'
with intensive media coverage and unprecedented public outcry.
Who is Ketan Parekh
Ketan Parekh is a former stockbroker based in Mumbai who was convicted in 2008 for being involved in engineering the technology
stocks scam in Indias stock market in 1999-2001. A chartered accountant by training, Parekh comes from a family of brokers and is
currently serving a period of disqualification from trading in the Indian bourses till 2017.Ketan Parekh has been accorded with
sobriquets such as the Pentafour Bull and the One Man Army by the countrys national business newspapers, while the market simply
refers to him as KP or associates him with his firm NH Securities. Parekh is known to have no reluctance in meeting the press. He is
also known to have razor-sharp forecasts on market developments.
What distinguishes Ketan Parekh from the 'Big Bull' late Harshad Mehta
The two have been compared by people to have operated their scams using similar means and that their backgrounds were similar as
well. But the differences are very conspicuous
At the outset, Mehta came from a lower middle-class and modest background, while KPs family has been engaged as stockbrokers for
a significant time. He is also related to many prominent brokers. Secondly, when Mehta was operating, the market was still a closed
one and was just beginning to liberalize. It was revealed later that Mehta operated using the money of other people as his last recourse.
Further, Mehta is known to have resorted to aggressive publicity campaigns whereas KP operates almost clandestinely. The latter has
also been successful at creating stories and selling them aggressively to institutional investors
The Midas touch
Parekh attracted the attention of market players and they kept track of every move of Parekh as everything he was laying his hands on
was virtually turning into gold. But the Pentafour Bull still kept a low profile, except when he hosted a millennium party that was
attended by politicians, business magnates and film stars. And by 1999-2000, as the technology industry began embracing the entire
world, Indias stock markets started showing signs of hyper-activity as well and this was when KP struck.Almost everyone, from
investment firms which were mostly controlled by promoters of listed companies to foreign corporate bodies and cooperative banks
were eager to entrust their money with Parekh, which, he in turn used to inflate stock prices by making his interest obvious. Almost
immediately, stocks of firms such as Visual soft witnessed meteoric rises, from Rs 625 to Rs 8,448 per unit, while those of Sonata
Software were up from Rs 90 to Rs 2,150. However, this fraudulent scheme did not end with price rigging. The rigged-up stocks needed
dumping onto someone in the end and KP used financial institutions such as the UTI for this.
When companies seek to raise money from the stock market, they take the help of brokers to back them in raising share prices. KP
formed a network of brokers from smaller bourses such as the Allahabad Stock Exchange and the Calcutta Stock Exchange. He also
used BENAMI or share purchase in the names of poor people living in Mumbais shanties. KP also had large borrowings from Global
Trust Bank and he rigged up its shares in order to profit significantly at the time of its merger with UTI Bank. While the actual amount
that came into Parekh's kitty as loan from Global Trust Bank was reportedly Rs 250 crore, its chairman Ramesh Gelli is known to have
repeatedly asserted that Parekh had received less than Rs 100 crore in keeping with RBI norms.
Parekh and his associates also secured Rs 1,000-crore as loan from the Madhavpura Mercantile Co-operative Bank despite RBI
regulations that the maximum amount a broker could get as a loan was Rs15-crore. Hence, it was clear that KPs mode of operation
was to inflate shares of select companies in collusion with their promoters.
Lady luck disfavours Parekh!
Notably, a day after the presentation of the Union Budget in February 2001, Parekh appeared to have run out of luck. A team of traders,
Shankar Sharma, Anand Rathi and Nirmal Bang, known as the bear cartel, placed sell orders on KPs favorite stocks, the so called K10 stocks, and crushed their inflated prices. Even the borrowings of KP put together could not rescue his scrips. The Global Trust Bank
and the Madhavpura Cooperative were driven to bankruptcy as the money they had lent Parekh went into an abyss with his reportedly
favourite K-10 stocks.
The exposure of the dupe
As with the Harshad Mehta scam, Ketan Parekh's fraudulent practices were first exposed by veteran columnist Sucheta Dalal.
Sucheta's column read, It was yet another black Friday for the capital market. The BSE sensitive index crashed another 147 points and
the Central Bureau of Investigation (CBI) finally ended Ketan Parekhs two-year dominance of the market by arresting him in connection
with the Bank of India (BoI) complaint. Many people in the market are not surprised with Parekhs downfall because his speculative
operations were too large, he was keeping dubious company, and he was dealing in too many shady scrips.
When the prices of select shares started constantly rising, innocent investors who had bought such shares believing that the market
was genuine were about to stare at huge losses. Soon after the scam was exposed, the prices of these stocks came down to the
fraction of the values at which they had been bought. When the scam did actually burst, the rigged shares lost their values so heavily
that quite a few people lost their savings. Some banks including Bank of India also lost significant amounts of money.
Dalal goes on to state that Parekh's scheme was not visible to a layman given the positive deflection that media had made him a hero
while some of the biggest national dailies had even quoted him profusely on that years Union Budget. Dalal added that KPs arrest and

the uncanny similarity of his operations to the Harshad Mehta securities scam of 1992 vindicated the miserable inadequacy of the
countrys regulatory system. The Securities Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) had remained
complacent when the stock bubble was created during the latter half of 1999 and through 2000 while it had not bothered to take any
action through 2001 when it was ready to burst.
SEBIs damage control measures
SEBI investigations into Parekh's money laundering affairs revealed that KP had used bank and promoter funds to manipulate the
markets. It then proceeded with plugging the many loopholes in the market. The trading cycle was cut short from a week to a day. The
carry-forward system in stock trading called BADLA was banned and operators could trade using this method. SEBI formally
introduced forward trading in the form of exchange-traded derivatives to ensure a well-regulated futures market. It also did away with
broker control over stock exchanges. In KPs case, the SEBI found prima facie evidence that he had rigged prices in the scrips of
Global Trust Bank, Zee Telefilms, HFCL, Lupin Laboratories, Aftek Infosys and Padmini Polymer.
Furthermore, the information provided by the RBI to the Joint Parliamentary Committee (JPC) during the investigation revealed that
financial institutions such as Industrial Development Bank of India (IDBI Bank) and Industrial Finance Corporation of India (IFCI) had
given loans of Rs 1,400 crore to companies known to be close to Parekh.
Criticism of SEBI
Some of the regulatory actions SEBI undertook came under scathing criticism from some quarters who accused it of still being clueless
about its supervisory duties. Observers said the regulator still continued believing that its only priority was to prevent a fall in stock
prices.
It was rumored that SEBI banned short sales and increased margins creating a virtual cash market in the process and squeezed
turnover to a sixth of the normal level. It also fired all broker directors from the Bombay Stock Exchange and Calcutta Stock Exchange
and declared the completion of three controversial settlements of the Kolkata bourse by retaining a sizeable proportion of the payout of
operators who had allegedly tied-up for collusive deals. Furthermore, SEBI rounded up the bear operators and launched an inquiry into
their alleged short sales.
Stringent regulatory measures follow Parekh episode
Parekh's fraudulent operations motivated the authorities to take necessary steps that have made made India's stock markets relatively
safer in present times. He can also be credited for having forced indolent policy-makers to bring about reforms in the financial system.
An active trader
According to an Intelligence Bureau report, though disbarred from trading in the countrys bourses until 2017, is still operating in the
markets through conduits, vindicating Dalal Streets belief that he has never left the market. The report says that as recently as
December 2010, KP has been rallying behind different stocks and placing some of them at rigged up prices to large institutions such as
the LIC. He is operating through little-known investment firms, market operators and a following of loyal brokers. KP, who was at the
forefront during the technology shares-led bull run in 1999-2000, is apparently using front entities such as Orchid Chemicals , GMR
Infrastructure, Cairn India, Deccan Chronicles Holdings, Reliance Industries, Punj Lloyd, Indiabulls Real Estate, Pipavav Shipyard,
Amtek Auto, Hindustan Oil Exploration, UCO Bank, State Bank of India, EIH and JSW Steel, among others, to trade in shares.The
report further states that KP has been instrumental in inflating the share price of SKS Microfinance from Rs850 to Rs1,100 following its
listing in August 2010. He has also rigged IPOs of little known companies by buying out 50% of the issue in collusion with his Kolkatabased associates. KP and his associates have also acquired very large positions in petroleum companies such as ONGC and HPCL,
according to the report. An IB official has further said that KP and his team have revealed to their close associates that they have
insider information on the government's proposal to decontrol the sale of gas which is expected to raise profit margins of these
companies by about 20%

Ketan Parekh held in Rs 120 cr stock scam case

TNN | Dec 2, 2002, 07.59 PM IST
KOLKATA: Stock broker Ketan Parekh was arrested on Monday by a team of the Kolkata police from his
office near Dalal Street for his alleged involvement in last year's Rs 120-crore scam at the Calcutta Stock
Exchange. Parekh was arrested at around 4 p.m. and taken to the MRA police station near Crawford market
for interrogation. He will be produced in the Esplanade court around 11 a.m. on Tuesday before being taken
to Kolkata, where an FIR was registered against him by the Calcutta exchange in September.
According to the police, Parekh's arrest came close on the heels of the dentention of his associates in
Kolkata, Dinesh Singhania, Harish Biyani and Ashok Podar. Parekh has been accused of making brisk share
purchases on the exchange prior to March, 2001, through his associates. But he failed to provide funds
amounting to over Rs 150 crores for the same, leading to a huge payment crisis that had affected share
prices across the country. Following the default, the exchange officials had to use the settlement guarantee
fund (SGF) to the tune of over Rs 50 crores to announce pay-out and since then the exchange has been

fighting for survival. Parekh had earlier admitted before the joint parliamentary committee investigating
the March 2001 stock scam that he had paid Rs 3,191 crores to Kolkata-based stock brokers towards
purchase of shares, payment of margins etc. He acknowledged that he had availed of the faulty margin
system in the exchange. The committee had urged criminal action against Parekh. The Securities and
Exchange Board of India had found out that most of the trades done by Parekh were aimed at rigging stock
prices in close nexus with company promoters.