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JPC reveals modus operandi of Ketan Parekh

Ketan Parekh, prime accused in last year's stock scam, operated through a large number of entities which facilitated hiding of nexus between corporate sources of fund flow and the ultimate use in the stock market, the Joint Parliamentary Committee probing the stock scam has observed.

"He (Parekh) used a networking of various foreign institutional investors, sub-accounts, overseas corporate bodies, institutions and mutual funds for large transactions thereby creating an impression of market interest in certain select scrips," the JPC inquiring into the stock scam and temporary freeze on UTI's flagship scheme US-64 said in its draft report which is about to be finalised.

"To begin with, he normally identified companies with relatively low floating stocks, acquired substantial holdings in these companies either directly or through associates including FII sub-accounts and OCB," the report said.

"Various layers were created (by Parekh) so that it becomes difficult to link the source of fund with the actual user of the fund", the report said adding it was observed that funds were received by certain entities from banks as loan and overdrafts that were diverted to other entities for acquiring shares and meeting other obligations".

It also appeared that the transactions for purchase and sale of shares were done in the name of large number of entities so that concentration of positions/transactions in a particular scrip would not be detected, the report stated.

The report said Ketan Parekh also used the presence of number of exchanges and different settlement cycles to systematically shift positions from one exchange to the other.

It said the entities associated with Parekh have received huge amounts from banks and various corporate groups.

"Some of the corporate groups which had given funds to Ketan Parekh entities during January 2000-April 2001 are Adani, HFCL, DSQ, Cadila, Essel, Kopran and Nirma and the amount outstanding from Ketan Parekh to these entities is over Rs 1,273 crore (Rs 12.73 billion)," the report said.

The JPC said the amount outstanding to Global Trust Bank from Parekh entities as on March 23, 2001 was Rs 266.87 crore (Rs 2.67 billion).

"Parekh had also received funds from Centurion Bank, ICICI Bank and Bank of Punjab against which a total amount of Rs 65.47 crore (Rs 654.7 million) was outstanding," the report observed.

On Parekh's complicity with the Madhavpura Mercantile Cooperative Bank, the report said the latter issued pay orders in favour of Ketan Parekh entities from time to time even when there were no sufficient credits or securities to cover these loans/overdrafts.

"Ketan Parekh entities would then discount these pay orders with Bank of India and the stock exchange branch of BOI would present these pay orders for realisation to the clearing house in normal course of their business."

The report said on February 8, 2000 and March 9, 2001, MMCB issued pay orders totalling Rs 137 crore (Rs 1.37 billion) favouring Ketan Parekh entities, which were immediately discounted with BOI and the proceeds received were utilised by Ketan Parekh entities.

"But on this occasion when BOI presented these pay orders to the clearing house for realisation, MMCB showed its inability to pay, since sufficient funds were not available with the bank," the report said.

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