Ketan Parekh scam is considered as the second biggest scam after the Harshad Mehta Scam. Ketan Parekh is a former stockbroker from Mumbai popularly known as “Bombay Bull”.
He started his career at a reputed institutional brokerage firm. During his early years in work life, he came in contact with Harshad Mehta. It is said that Ketan Parekh was trained by the Harshad Mehta and his brother Ashwini Mehta.
During Mehta’s scam, he was never convicted because he ensured that he remained low key, with a simple lifestyle thus presenting a humble “feet-on-the-ground” demeanour even when interviewed by journalists like Sucheta Dalal.
Things started to change for Ketan Parekh during the beginning of the 21st century, he got closer to celebrities. Due to this, he came into the media’s eye and limelight which led to an investigative story on him.
During his time, it is said that he single-handedly drove the share prices of many companies. But the only problem with this was that Ketan Parekh used to accept money from companies promoters to surge their stock prices. This can be considered as insider trading and it is totally illegal.
Apart from this now let’s talk about how does the shares prices of these companies used to increase. Ketan Parekh made everyone believed that he is a believer of Information, Communication and Entertainment sector stock. Also during that era, due to the IT boom and most of the stocks from this sector were booming globally. So everyone believed that Ketan Parekh is picking stocks on the basis of their fundamentals. But in reality, he was using the pump and dump scheme.
Instead of investing in stocks on the basis of their fundamentals, Ketan Parekh was picking stocks which had low market cap and liquidity. He used to pump money is this stocks and when the stock price would start surging other average investors in the market also used to buy these stocks driving the prices of these stocks even higher. Then, at this time Ketan Parekh used to liquidate his holding bit by bit. Ketan Parekh used this method again and again for 10 stocks only and eventually this stocks came to known as K-10 stocks and Parekh was playfully referred to as “Pentafour”. For example shares of Zee telefilms surged from Rs. 127 to a price of Rs. 10,000.
On March 1, 2001, the BSE Sensex had been crashed by 176 points which led the government to set up an enquiry into the market reaction.
Though Parekh was afterwards banned from stock trading, the Securities and Exchange Board of India alleged in 2008 that a variety of companies and other actors were trading on behalf of Parekh. An investigation ensued and 26 entities were banned from trading as a result of that investigation.