Ketan Parekh strikes again! SEBI unearths unusual front-running scam, impounds Rs 65.77 crore

In an order issued on January 2, the Securities and Exchange Board of India detailed the investigation that spanned over 20 locations

The market regulator has unearthed an unusual front-running scam involving Ketan Parekh, a stock market operator who was earlier imprisoned and then debarred from the securities market for 14 years for his role in the scam of 2000, and a Singapore-based trader Rohit Salgaocar.

In an interim order issued on January 2, the Securities and Exchange Board of India (SEBI) detailed the investigation that spanned over 20 locations and impounded unlawful gains of around Rs 65.77 crore. The order was passed against 22 entities.

The order issued by SEBI's Whole-time Member Kamlesh Varshney stated, "Noticees no. 1 and 2 i.e. Rohit Salgaocar and Ketan Parekh devised the entire scheme to unjustly enrich from the NPI pertaining to the Big Client by orchestrating front running activities. Noticee no. 10 (Ashok Kumar Poddar) has admitted to be a facilitator in the front running activities. Further, Noticees no. 2 and 10 i.e. Ketan Parekh and Ashok Kumar Poddar had been prohibited from dealing in the securities and debarred from associating with the securities market in the past as well. Considering the same, Noticees no. 1,2 and 10 shall be restrained from buying, selling or dealing in securities or associating with any intermediary registered with SEBI, either directly or indirectly, with immediate effect."

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According to the order, "Traders of the Big Client (a fund house where Salgaokar had close connections) were discussing with Rohit Salgaocar prior to executing trades and such information was prima facie encashed by Rohit Salgaocar by sharing the same with Ketan Parekh. 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. Ketan Parekh is not an ordinary person. As discussed later, he was debarred from the securities markets for 14 years earlier also".

The whole operation and investigation was novel for the information flow, how Parekh used his earlier network of Kolkata based entities for front-running the trades, and how the main players were operating outside the regulatory ambit.

The mechanics of the operation

Salgaonkar, owing to his connections, had information about trades that were to be taken by a big US fund house.

He used to find counterparties for the big fund house's trades through different market participants including foreign funds, Indian funds, other holders of the shares and Ketan Parekh. As per a statement made by Salgaokar, around 90 percent of the Big Client trades were being fulfilled by Ketan Parekh alone. Parekh passed on this information via various WhatsApp chats or phone calls and his associates would front-run these trades.

The SEBI investigation found that Ketan Parekh was executing non-public information (NPI) based trades through accounts of the six front-runners (FRs) and the SEBI showed a diagrammatic representation of information flow from Ketan Parekh to FRs for execution through their trading accounts.

Source: SEBI

The profits were then shared through cash-transactions or banking transactions.