Ketan Parekh, or KP, once the poster child of stock market manipulation in India, has again been caught in the Securities and Exchange Board of India's (SEBI's) net. Known for his infamous role in the stock market scam of the early 2000s, Mr Parekh was banned from trading for 14 years. Despite this, SEBI has discovered that Mr Parekh covertly orchestrated a Rs65 crore front-running operation. The unravelling of this case came from an unexpected source: his wife's mobile phone!
SEBI barred three individuals, including Mr Parekh, Rohit Salgaocar and Ashok Kumar Poddar, from markets with immediate effect for their alleged involvement in a front-running scheme which generated illegal gains of Rs65.77 crore. Further, SEBI directed 22 entities, including these three, to disgorge unlawful gains worth Rs65.77 crore earned from the alleged violations, jointly and severally.
SEBI investigators' suspicions about Mr Parekh's continued involvement in the securities market were reignited during an inquiry in 2023. While visiting SEBI's office for an unrelated matter, Mr Parekh provided two mobile numbers on the visitor slip. One of these numbers turned out to be registered under his wife, Mamta Parekh, using her Aadhaar. This became the pivotal clue that broke open Mr Parekh's covert activities.
The phone number had been active since 2001 and was consistently linked to locations that aligned with Mr Parekh's movements. SEBI cross-referenced this with other suspicious numbers flagged during an ongoing investigation into front-running activities, establishing a clear connection.
According to SEBI, Mr Parekh used various mobile numbers and devices to communicate with the FRs. In his statement on 12 December 2023, he confirmed that mobile number 'XXX0308243' belong to his wife, Mamta.
"Mr Parekh had been using multiple contact numbers and SIM cards issued in the name of different persons in order to disguise his identity. This is also corroborated by Mr Parekh in his statement made before SEBI wherein he admitted that he used to change his contact number frequently and that such contact numbers were not obtained in his name," SEBI says.
According to the market regulator, Mr Parekh operated through a network of at least 10 mobile numbers, all registered under different names. These numbers frequently converged in the same locations—his Marine Drive residence, luxury hotels, or during trips. By tracing call data records, SEBI discovered that these phones acted as conduits for non-public information (NPI), critical to Mr Parekh's front-running scheme.
The NPI was sourced from Mr Salgaocar, a Singapore-based trader who worked as a consultant for Motilal Oswal Financial Services Ltd (Motilal) and Nuvama Wealth Management Ltd (erstwhile Edelweiss Securities Ltd) (Nuvama). Mr Salgaocar, through Strait Crossing Pte Ltd (SCPL), in which he was director and authorised signatory had referral agreements with these firms, granting him access to sensitive information about the trading strategies of a US-based 'Big Client'. This information was passed to Mr Parekh, who then executed pre-emptive trades to benefit from the price movement caused by the client's large transactions.
SEBI issued an interim order against 22 individuals and entities for alleged front-running activities involving a US-based foreign portfolio investor (FPI) managing US$2.5trn (trillion) in funds globally. The scheme, which ran for over two and a half years, involved the misuse of NPI to generate illegal profits.
Key Players and Modus Operandi
The SEBI order identifies Mr Parekh, previously debarred for 14 years for his role in the 2000 stock market scam, and Singapore-based trader Mr Salgaocar as the masterminds. Mr Salgaocar allegedly accessed confidential trade information through his connections with the FPI, referred to as the 'Big Client'.
SEBI found that before the execution of suspicious trades, FRs were receiving trade instructions through WhatsApp chats or calls from a person whose contact numbers was saved in the devices as Jack, Jack New, Jack Latest New and Boss. An analysis of these contact numbers, shows that these numbers belonged to Mr Parekh who was receiving NPI from Mr Salgaocar. After receiving specific and timely instructions, directly or indirectly, from Mr Parekh, the FRs used to execute orders and made unjust profits.
SEBI investigation further revealed that the Big Client used to place orders containing the scrip name, buy/sell quantity and buy/sell price through their order messaging system called FIX. For orders routed through Motilal and Nuvama, traders of Nuvama and Motilal used to execute such orders. "However, the instructions regarding execution of these orders such as details of the scrip, time quantity and price of the order, were dictated by Mr Salgaocar. It was found that SCPL, the company owned by Mr Salgaocar, had entered into a referral agreement with Nuvama and Motilal for revenue sharing of the brokerage earned on trades of the Big Client referred by SCPL."
The market regulator observed that the NPI relating to impending orders of the Big Client was being passed from Mr Salgaocar to Mr Parekh, who in turn, used to communicate trading instructions based on such NPI, directly or indirectly, to the six FRs for execution in order to gain undue profits.
Despite their facilitation of Big Client trades, SEBI found no evidence implicating brokers Motilal Oswal Financial Services and Nuvama Wealth Management.
SEBI's Investigation Tactics
Location Analysis: SEBI used location data from mobile phones to track movements, finding them consistently stationed at Mr Parekh's residence during night-time hours. This confirmed Mr Parekh's control over these devices.
Device Matching: The IMEI numbers of the devices used by Parekh matched across multiple phone numbers, providing incontrovertible evidence of his involvement.
Digital Evidence: SEBI retrieved WhatsApp chats from one of the phones. Conversations revealed Parekh using aliases such as 'Jack' and 'Boss'. A birthday greeting in these chats matched Parekh's actual date of birth, cementing his identity.
Trading Patterns: SEBI identified Mr Parekh's strategy. Trades were executed in accounts of front entities shortly before the Big Client placed large buy or sell orders, creating artificial price movements. These trades were then reversed for profits.
The Operation's Key Players
Hawala Network: Mr Parekh relied on angadias, traditional cash couriers, to move funds outside the formal banking system, obscuring financial trails.
Front Entities: GRD Securities, Salasar Stock Broking, and others were instrumental in executing the manipulated trades.
Accomplices: A wide-ranging network of individuals, including entities from West Bengal, acted as fronts to launder money and execute trades on Parekh's behalf.
The Big Client
The origin of the NPI is traced back to a US-based fund referred to as the 'Big Client'. This fund's trading desk frequently consulted Mr Salgaocar for market strategies. Leveraging his access, Mr Salgaocar provided Mr Parekh with confidential trading plans. Mr Parekh's network capitalised on this to execute trades in anticipation of the client's orders, ensuring substantial profits.
According to SEBI's investigation, the NPI pertaining to impending orders of the Big Client in various scrips was communicated by Mr Salgaocar to Mr Parekh. Thereafter, Mr Parekh used to instruct other noticees to execute orders through the trading accounts of FRs to take positions in the market to benefit from the impending orders in various scrips.
In his statement on 7 March 2024 and 22 July 2024, Mr Salgaocar stated that for executing trades of the Big Client, he used to find counterparties through different market participants including foreign funds, Indian funds, other holders of the shares and Mr Parekh. "However, as per the statement of Mr Salgaocar, around 90% of the Big Client trades were being fulfilled by Mr Parekh alone."
SEBI's Findings
The SEBI Order Highlights:
Mr Salgaocar had access to 90% of the Big Client's trade plans and shared these with Mr Parekh.
Mr Parekh used multiple aliases and phones to instruct frontrunners, who executed trades systematically across different accounts.
Illegal gains totalling Rs65.77 crore were identified and the bank accounts of the accused have been frozen. According to SEBI, Kolkata-based Mr Poddar is a close associate of Mr Parekh and has known him since 1990s. "Mr Parekh used to provide trade-related instructions to Mr Poddar over WhatsApp call and messages. Thereafter, Mr Poddar used to communicate the same to his son, Rachit. As per the instructions received, Rachit Poddar used to execute the trades in the trading accounts of APR Properties Pvt Ltd and Basukinath Properties Pvt Ltd, respectively, through the systems placed at their residence."
Enforcement Actions
SEBI's whole-time member (WTM) Kamlesh Varshney issued the interim order prohibiting Mr Parekh, Mr Salgaocar and Mr Poddar, from participating in the securities market, citing their past offences and repeated misconduct.
Mr Poddar admitted to facilitating the scheme which SEBI described as a systematic method of profiting from NPI while evading regulatory scrutiny.
The order also flagged the use of unofficial cash transfer channels, or angadias, to distribute the proceeds of the scam. SEBI conducted a search and seizure operation at 17 premises in June 2023, uncovering critical evidence such as WhatsApp messages, phone records, and financial transactions.
Strengthening Market Integrity
SEBI says it is also crucial to note that Mr Parekh is a habitual offender and has been found guilty of market manipulation in the past as well. Through his group broking firms and investment companies, Mr Parekh indulged in manipulative trades which led to the stock markets crash in 2001. A joint parliamentary committee (JPC) on stock market scam and matters relating thereto was also constituted on 27 April 2001 to probe into the irregularities and manipulations related to the stock markets crash of 2001. The JPC submitted its report on 19 December 2002 where it noted that Mr Parekh was the key player in the scam and received large sums of money from banks as well as from corporate bodies during the period when the Sensex was falling rapidly and therefore recommended SEBI to investigate the matter expeditiously.
The investigations conducted by SEBI into the alleged violations revealed that Mr Parekh created artificial volumes and manipulations in various scrips during the period between 1999 to 2001 and accordingly various enforcements actions were initiated against Ketan Parekh group entities including passing of various directions under Section 11B of the SEBI Act, Adjudication Proceedings and Prosecution Proceedings.
In its 188-page order, SEBI emphasised the need for interim action to safeguard market integrity and prevent further violations. It has also directed Nuvama and Motilal Oswal to strengthen internal controls to avoid similar incidents.
This crackdown highlights SEBI's efforts to tackle insider trading and market manipulation, using advanced alert systems to detect such schemes.
