Sebi cracks down on Ketan Parekh in new front-running case | Stock Market News

Mumbai: India’s market regulator said it has uncovered an alleged front-running scheme involving Ketan Parekh, convicted in 2008 for stock market manipulation, and Rohit Salgaocar, whose company facilitated these “illicit” trades that led to unlawful gains of ₹65.77 crore.

Parekh and Salgaocar orchestrated trades based on confidential, non-public information (NPI) related to substantial stock orders from a US-based foreign portfolio investor (FPI), referred to as “Big Client”, according to investigations of the Securities and Exchange Board of India (Sebi).

Role of key accused

“The evidence gathered, including digital footprints, WhatsApp chats, phone calls, and Bloomberg messages, suggests that Ketan Parekh was directly involved in executing the front-running strategy,” said the order by Sebi whole time member Kamlesh Varshney. Parekh allegedly received crucial trade instructions through intermediaries and passed them to traders, resulting in unlawful gains, the order said.

Parekh’s role in the scheme is considered particularly egregious due to his prior involvement in the 2001 stock market crash and his previous 14-year ban from the market, which was lifted only recently. The investigation revealed that Parekh communicated orders with traders at firms like Nuvama Wealth Management Ltd and Motilal Oswal Financial Services Ltd, which were executing trades for the Big Client, Sebi said.

The timing, volume, and price of trades matched suspiciously with those of six entities, referred to as “front runners”, according to the regulator. These entities, including Salasar Stock Broking and GRD Securities, are alleged to have made illicit profits by trading ahead of the Big Client’s orders. The referral system helped Salgaocar earn substantial amounts by routing the trades through these brokers. According to Sebi order, the profits generated from these trades amounted to ₹38.70 crore, while Salgaocar, who facilitated these actions, earned additional commissions totaling ₹27.07 crore from the brokers involved.

Sebi said the investigation also pointed out that this case was not isolated and had broader implications for the integrity of India’s securities markets. The regulator’s swift action was deemed essential to prevent further manipulation. Sebi pointed to the extensive use of technology by the parties involved, who took elaborate steps to cover their tracks, including sharing non-public information over encrypted messages.

“The trading activities which are prima facie swarmed with illicit design, were repeatedly carried out for a long period of time,” Varshney said in the order. “The accused were able to generate a large amount of profits which is prima facie found to be unlawful, which may be siphoned off beyond regulatory reach, if immediate steps are not taken.”

According to the order, the nexus between the accused, use of technology to share information and sharing of large amounts of profits made it imperative for Sebi to protect siphoning of the unlawful gains made by noticees, which may be liable for disgorgement in the final proceedings.

The total illicit gains from this front-running operation are estimated at ₹65.77 crore, which the regulator has ordered will be impounded from the involved parties, with joint and several liabilities imposed on the individuals and entities responsible.

The implicated parties have been directed to deposit the amount into interest-bearing accounts in scheduled commercial banks until further proceedings are determined. Sebi issued a show-cause notice to the entities and individuals named, asking them to explain within 21 days why further penalties should not be imposed for their role in the allegedly fraudulent scheme.