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TitleKetan Parekh Scam
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The shares were held through KP's company, Triumph International. In July 1999, he held

around 1.2 million shares in Global. KP controlled around 16% of Global's floating stock,

25% of Aftek Infosys, and 15% each in Zee and HFCL. The buoyant stock markets from

January to July 1999 helped the K-10 stocks increase in value substantially (Refer Exhibit I

for BSE Index movements). HFCL soared by 57% while Global increased by 200%. As a

result, brokers and fund managers started investing heavily in K-10 stocks.

Mutual funds like Alliance Capital, ICICI Prudential Fund and UTI also invested in K-10

stocks, and saw their net asset value soaring. By January 2000, K-10 stocks regularly

featured in the top five traded stocks in the exchanges (Refer Exhibit II for the price

movements of K-10 stocks). HFCL's traded volumes shot up from 80,000 to 1,047,000

shares. Global's total traded value in the Sensex was Rs 51.8 billion. As such huge amounts

of money were being pumped into the markets; it became tough for KP to control the

movements of the scrips. Also, it was reported that the volumes got too big for him to handle.

Analysts and regulators wondered how KP had managed to buy such large stakes.

[1] When the interest rates were freed in mid-1989, it made the price of both bonds and

money more volatile, and increased the link between the securities and money markets.

With price volatility and increased volumes, securities broking became a profitable activity.

The rising volumes were funded by banks through bank receipts (BR is a document issued by

a bank acknowledging that it has sold certain government securities to a party and received

payment). The scam came to light when RBI asked the SBI to show the bank receipts, and it

was found that Rs 6.22 billion not been reconciled and was untraceable. The money involved

in the scam was eventually ascertained to be well over Rs 30 billion.

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The 176-point Sensex 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


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 having exceeded its prudential norms of capital exposure, thereby contributing to

the stock market volatility. The panic runs 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. (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 Ketan Parekh (KP), on March 30, 2001, by

the Central Bureau of Investigation (CBI). Soon, reports abounded as to how KP had singled

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