E-Paper
HT Archives: CBI arrests Parekh in fraud case, stock market takes a hit
CBI arrests stock market mogul Ketan Parekh for defrauding Bank of India of ₹130 crore, causing a major market crash. Investigation underway.
The crisis-ridden stock market saw another twist when the Central Bureau of Investigation (CBI) today arrested big bull Ketan Parekh. The arrest was made following a complaint by the state-owned Bank of India (BoI).
Parekh has been charged with defrauding e BoI of ₹130 crore against pay-orders issued by Madhavpura Mercantile Co-operative Bank based in Ahmedabad.
CBI arrested him after questioning him for hours during the day. Parekh is expected to be produced in Mumbai’s designated court tomorrow and a formal chargesheet of defrauding BoI is likely to be filed.
CBI also questioned his cousins Navin Parekh and Kirit Parekh, who are his business associates, but they were let off later in the day. CBI told newspersons a that an FIR was ready to be filed in court. A formal investigation would be launched shortly, they said.
CBI simultaneously raided the offices of Ketan Parekh and his associates in Kolkata in a late evening operation.
The day-long drama that preceded the arrest led to another major crash on the bourses across the country. The Bombay Stock Exchange (BSE) sensex nosedived 147 points. Parekh’s favourite stocks, including Himachal Futuristic Communications Ltd (HFCL), Global Telesystems, DSQ Software and Zee Telefilms, witnessed a free fall in a day of wildly swinging fortunes on BSE.
The arrest of Ketan Parekh opened a can of worms as the other leading banks, including State Bank of India (SBI), Punjab National Bank and Allahabad Bank, have lost about ₹800 crore through pay orders issued by Madhavpura Bank.
All these funds found their way into the stock market through Ketan Parekh and other brokers. These funds were utilised by them in the rigging operation spurring all round speculative trading in top notch technology and telecom stocks before Yashwant Sinha’s New Deal budget.
Justifying the arrest, Finance Minister Yashwant Sinha conceded in the Capital that there were irregularities in the banking system. These loopholes were used by Parekh in collusion with the top brass of Madhavpura Bank to channel the bank’s funds into his market operations.
The modus operandi, according to people familiar with the matter started with Parekh being issued pay orders against “fictitious collaterals” provided by him.
Parekh would encash these pay orders from BoI and other banks at a heavy discount, routing the funds into several of his investment companies. These outfits put this money into the market in tandem with other big brokers to manipulate select stock prices.
Parekh used investment companies such as Classic Shares & Stockbroking Services, Panther Fincap Management Services,and Panther Investrade and Management Services for putting the money into the
market. The scam came to light when BoI went to Madhavpura Bank with the pay orders seeking transfer of funds.
The bank failed to honour its own pay orders; Parekh too expressed his inability to return the funds on the plea that his assets had been attached by Income-Tax Department in recent raids. His bank accounts have also been frozen.
RBI declared Madhavpura Bank a “defaulter” on March 12. The bank had already overstretched its loaning programmes. It had lent out a total of ₹1,700 crore when its deposit base was less at ₹1,200 crore, leading to a massive funds mismatch. The upshot of all this is that the bank might be eventually liquidated by RBI as indicated in the central bank’s interim report on the bank.
Several other brokers may face the same fate as that of Ketan Parekh. Banks which had lent money to these brokers may now proceed against them.
