Markets regulator Securities and Exchange Board of India, on Thursday, imposed a liability of Rs. 65.7 crore on Ketan Parekh, Rohit Salgaokar, and others in the extended front running case. The regulator gave these directions in an interim order.
SEBI observed in its order that Parekh has violated security law provisions several times, and hence it is pertinent to fix a liability for the entire scheme on the parties responsible. The regulator has said that Parekh and Salgaocar devised the scheme.
Ketan Parekh was the famous stock market operator, who was earlier imprisoned and was debarred from Stock Markets for 14 years for his role in the infamous Stock Market Scam of 2000.
The regulator has come out with a 188-page interim order that has made observations against 22 entities in total.
After the investigation that started in the year 2021, SEBI found that Salgaocar, who is a Singapore citizen, had some connections with a US-based fund house through which he knew about the trades that were to be taken up by it.
Using this information, he used it to find counterparties for the fund house's trades through Indian funds, foreign funds, and other holders of shares. It is important to note that most of this was done by Ketan Parekh using his extensive network, reaching up to 90 percent of the trades being fulfilled by him.
As per the SEBI order, Parekh used to work in a systematic manner once he got the information from Salgaocar and executed trades from several accounts, causing illegal gains.
Most of the other entities involved in the scheme are brokers and facilitators. In an interesting example of how Parekh used his personal network to orchestrate the scheme, we have the story of Ashok Kumar Poddar, another front runner implicated in the case.
Poddar, who was also associated with Parekh in the 2001 scam, gave a statement to the regulator mentioning the flow of the scheme. In chronological order, Parekh would give the nonpublic information regarding the trades to Poddar, who would pass it on to his son, Rachit Poddar. His son would later execute the trades using the accounts of APR Properties Pvt Ltd and Basukinath Properties Pvt Ltd.
These trades, based on information received over WhatsApp calls, would take place at Poddar's house to maintain secrecy.
Another important part of the scheme revealed in the SEBI order is that Rohit Salgaocar used to tell traders of the US-based fund the name of the particular Indian trading member to whom the deal ticket was to be sent for execution of trades. About 90% of trades of this fund that were executed by Motilal and Nuvama were referred by Rohit Salgaocar.
Additionally, Salgaocar was the sole director and authorised signatory of SCPL, a Singapore-based entity. SCPL had entered into agreements with two trading firms, Motilal and Nuvama, through memoranda of understanding (MoUs) or referral agreements.
These agreements, signed by Salgaocar on behalf of SCPL, specified that SCPL would refer clients to these firms in exchange for a share of the broking earned from these clients. The agreements also outlined the services SCPL would provide and how it would be compensated, forming the basis for their collaboration.
The unlawful profits made through the scheme would then be shared using cash and banking transfers. This was also seen through the transfer of unexplained amounts to and from Ketan Parekh's account.
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