Quick Overview
The Securities and Exchange Board of India (Sebi) has imposed an immediate ban on Ketan Parekh and two other individuals—Rohit Salgaocar and Ashok Kumar Poddar—from participating in the securities markets. This action comes as a result of their involvement in a front-running scheme that generated illegal profits amounting to ₹65.77 crore. The regulator has also mandated the impounding of these unlawful gains and has restricted their association with any registered intermediaries.
Key Points
- Immediate Ban and Impounding of Gains: Sebi has barred Ketan Parekh and his associates from the securities markets and ordered them to forfeit illegal gains of ₹65.77 crore.
- Nature of Front-Running: Front-running is an illegal practice where traders exploit advance information about orders from clients, allowing them to trade ahead and profit unlawfully.
- Sebi’s Investigation: The investigation covered the period from January 1, 2021, to June 20, 2023, revealing a complex scheme involving the misuse of non-public information (NPI).
- Past Offenses: Ketan Parekh has a history of market manipulation, having previously contributed to a significant stock market crash in 2001, resulting in a 14-year ban from the markets.
- Regulatory Actions: Sebi has issued show cause notices to 22 entities and requires their responses within 21 days, potentially leading to further penalties.
Detailed Breakdown
1. Immediate Regulatory Action
Sebi’s recent order immediately prohibits Ketan Parekh, Rohit Salgaocar, and Ashok Kumar Poddar from trading in securities. This ban is a part of a broader investigation into their activities related to a front-running scheme that generated substantial illegal profits.
2. Understanding Front-Running
Front-running involves insider trading where individuals trade based on confidential information before it is made public. This practice undermines market integrity and fairness, as it allows certain traders to profit at the expense of other market participants. The scheme orchestrated by Parekh and his associates exemplifies this illegal activity.
3. Investigation Findings
Sebi’s investigation revealed that Parekh and Salgaocar devised a scheme to profit from NPI related to a significant client, identified as a US-based fund house. The investigation highlighted the following points:
- Communication Methods: The front-runners received trade instructions through WhatsApp or phone calls from an individual saved in their contacts under various aliases, including “Jack” and “Boss.” This individual was confirmed to be Ketan Parekh.
- Execution of Trades: After receiving timely instructions, the front-runners executed trades across multiple accounts, generating unlawful profits.
- Systematic Approach: The evidence indicated a well-coordinated effort among the traders, with discussions about trades occurring before execution, allowing Salgaocar to share this information with Parekh for profit.
4. Past Offenses and Current Implications
Ketan Parekh is not new to regulatory scrutiny; he has a history of market manipulation that dates back to 2001, when his actions contributed to a major stock market crash. As a result of his past offenses, he has been banned from the securities markets for 14 years. This history of misconduct raises concerns about the integrity of his current activities and the need for stringent regulatory oversight.
5. Regulatory Framework and Future Actions
Sebi invoked the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) regulations to justify its actions against Parekh and his associates. The regulator has issued show cause notices to 22 entities involved in this case, demanding explanations for their roles and why further penalties should not be imposed. These entities are required to file their responses within 21 days, setting the stage for potential additional regulatory actions.
Important Details & Evidence
- Illegal Gains: The total illegal gains generated from the front-running scheme amount to ₹65.77 crore, which Sebi has ordered to be impounded.
- Communication Evidence: The investigation revealed that the front-runners communicated via saved contacts linked to Parekh, indicating a deliberate and calculated approach to executing their trades.
- Involvement of a Big Client: The scheme involved a significant client, a US-based fund house, which adds a layer of complexity to the case, given the international implications of the violations.
Conclusion
Sebi’s decisive actions against Ketan Parekh and his associates highlight the regulator’s commitment to maintaining market integrity and fairness. The front-running scheme not only resulted in substantial illegal profits but also demonstrated a systematic approach to exploiting confidential information. Given Parekh’s history of market manipulation, the ban serves as a reminder of the consequences of unethical trading practices. The ongoing investigation and potential penalties for the involved entities underscore the importance of regulatory vigilance in protecting the interests of all market participants.
