CBI drags Big Bull Parekh out of BSE china shop

CBI drags Big Bull Parekh out of BSE china shop
EXPRESS NEWS SERVICE

MUMBAI, MARCH 30: The man synonymous with the biggest boom in the history of the Bombay Stock Exchange, Ketan Parekh, was arrested this evening by the Bank Securities and Fraud Cell of the CBI for allegedly defrauding the Bank of India to the tune of Rs 130 crore. As the CBI placed Parekh under arrest and as the markets crashed in what was its seventh successive Black Friday, it seemed like the Harshad Mehta story of 1992 was being retold almost a decade later.

The CBI has lodged the FIR in court where Parekh is likely to be produced tomorrow morning. Two of his relatives were also picked up for questioning, sources said.

Parekh was grilled by CBI officers since morning in a South Mumbai hotel. He was brought to the CBI’s White House office at Walkeshwar Road at about 5.40 pm, in an Ambassador accompanied by an officer. He looked drawn and tired. Journalists waiting outside the office almost missed him as he entered the building.

The CBI also raided companies linked to Parekh. These include Panther Investment Traders, Panther Fincop and Management Service, M/S Classic Pvt Ltd, Chitrakoot Computers Pvt Ltd and Nakshatra Software Pvt Ltd. Residential premises of three bank officials and the Mandvi branch of BoI and the Madhavpura Bank were also raided.

The investigation is being monitored by senior officials of the CBI in Delhi. The Economic Offences Wing of the CBI has also joined in the investigations in Mumbai.

The trigger for Parekh’s arrest was provided by the Bank of India (BoI) which filed a complaint with the CBI on Thursday night (reported by The Indian Express today), following which the agency registered a case of cheating and forgery against the Big Bull. The Bank of India’s complaint said the pay orders issued by the Madhavpura Cooperative Bank in the name of Ketan Parekh and discounted by them (BOI), to the tune of Rs 137 crore, had been dishonoured.

Pay orders of the Madhavpura Bank discounted by BOI had been credited to three finance companies owned by Parekh. These are Classic Share and Stock Broking Services, Panther Fincap Management Services and Panther Investrade and Management Services. The total amount routed to these companies is Rs 660 crore, BoI’s own investigation has found.

Parekh had pledged his over-priced shares to Madhavpura Bank, and got a line of credit from it this bank then issued pay orders which the Bank of India discounted and credited to Parekh’s firms. This money was used to jack up share prices again the chain broke when the bear cartel forced share prices down, and Ketan began to default. Clearly Ketan was rotating funds between Madhavpur and BoI, but funnily the RBI never detected anything wrong.

The Ketan Parekh scandal has shades of the securities scam engineered by Harshad Mehta which hit the stock market in 1992. The 38-year-old Parekh was also grilled by detectives of the Bank Securities and Fraud Cell of the CBI for insider trading and rigging apart from cheating and forgery.

Although his arrest took place a couple of hours after the market’s closing, Dalal Street was abuzz all day with rumours of imminent, punitive action against the broker. Through the day, the Sensex shed 147 points on continuous selling pressure from investors, funds and institutions to finally close at 3604.38, down 3.92 per cent.

Finance Minister Yashwant Sinha said in Delhi today that the market regulator, the Securities and Exchange Board of India (Sebi), was also looking into the issue, indicating some action could be taken only after its enquiry was over.CBI spokesman S M Khan said latest reports indicated that the fraud involving Parekh could be to the tune of Rs 843 crore affecting three nationalised banks including BoI.

Known in market parlance as the ‘‘Technology Bull’’ and ‘‘Bombay Bull,’’ Parekh had, over the last two years, come to wield an almost magical effect on the price of highly volatile stocks particularly in the technology and media sectors. He was mainly responsible for the bull run in 2000 when the Sensex hit an all-time high of 6,150 in February 2000. Small wonder then that today all the ICE (information, communication and entertainment) stocks went into a tailspin and lost between 4-16 per cent through the day.

KP-10 (said to be the ten favourite stocks of Ketan Parekh) counters Himachal Futuristic, Global Tele-Systems, SSI, DSQ Software, Zee Tele, Silverline, Pentamedia Graphics and Satyam Computer in which Parekh has high stakes, bore the brunt of investors’ wrath.

Parekh, a reticent player till a few months ago, commanded clout that even rivalled that of Harshad, the original Big Bull. With a millennium bash, he announced his coming out and was seen in parties rubbing shoulders with the high and the mighty. The film and TV crowd flocked to the man who made media shares soar high and soon KP was a celebrity, seen in the company of media baron Kerry Packer, politician Amar Singh or Vinay Maloo of Himachal Futuristic.This scam looks much smaller in comparison to the Harshad scandal a Rs 5,000-crore-plus scam which involved the illegal channelling of bank funds into the stockmarket. However, an investigation into the trail of funds of Parekh’s shell companies could unearth more dirt and unravel the story behind the biggest bull run in BSE history.