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Journalism of Courage
The Securities and Exchange Board of India (SEBI) on Monday debarred Ketan Parekh, a disgraced stock market operator, and two other entities from participating in the stock market in a front-running scam.
The market regulator also impounded Rs 65.77 crore gained wrongfully by Parekh, Rohit Salgaocar, a Singapore-based trader, and others through the scam. Parekh is a habitual offender and has been found guilty of market manipulation in the past as well. He was earlier imprisoned and debarred from the stock market for 14 years for his role in the infamous stock market scam of 2000.
Salgaocar and Parekh orchestrated a novel method of front-running the trades of a US-based fund house (referred to as Big Client or FPI), managing around $2.5 trillion globally.
“While the traders of the Big Client were discussing trades with Rohit Salgaocar for ensuring counter parties for their trading, Rohit Salgaocar was using that information to make illegal profits by routing information to Ketan Parekh.
When the information reached Ketan Parekh, he acted in a systematic manner and trades were executed in different accounts which cumulatively generated unlawful profits,” SEBI said in the 188-page interim order. The order has named 22 entities including Parekh and Salgaocar.
Salgaocar had entered into a referral agreement with Motilal Oswal Financial Services and Nuvama Wealth Management to refer trades of the Big Client to them.
The traders of the Big Client used to consult Salgaocar prior to placing orders in Indian markets and thus Salgaocar allegedly had access to the non-public information with respect to substantial impending transactions in various scrips. Salgaocar and Parekh devised the entire scheme to unjustly enrich from the non-public information (NPI) pertaining to the Big Client by orchestrating front running activities, SEBI order said. Prior to execution of suspicious trades, the front runners (FRs) were receiving trade instructions through WhatsApp chats or calls from Parekh whose contact number was saved as Jack/Jack New/Jack Latest New/Boss.
Salgaocar and Parekh orchestrated the front running scheme by staying outside the regulatory ambit and running the entire show with the help of various associates. Typically, it is the employee of the Big Client/fund which instructs the Indian trading member for placing order, however, in this case it was found that Salgaocar who was giving the trading instructions.
“A detailed analysis of orders placed by the Big Client and FRs revealed the recurrent matching of the scrip, price, quantity and timing of trades between the Big Client and FRs which would not have been possible unless FRs were in possession of NPI or NPI-based trading instructions relating to impending orders of the Big Client in various scrips,” the order said. The front-running scam was unearthed by SEBI through search and seizure operation at the premises of 17 entities, spanning across Kolkata and Mumbai.
SEBI clarified that while Motilal Oswal and Nuvama Wealth Management facilitated Big Client trades, no evidence of wrongdoing was found against them. The SCN stated: “The trades of the Big Client undertaken through Nuvama and Motilal matched with trades of FRs. However, no evidence implicating these trading members in the alleged fraud has been discovered.”
