Ketan Parekh and Rohit Salgaocar Allegedly Orchestrate Front-Running Scheme
The Securities and Exchange Board of India (SEBI) has unearthed a major front-running scam involving notorious stock market operator Ketan Parekh and Singapore-based trader Rohit Salgaocar. In an interim order issued on January 2, SEBI outlined how the two men orchestrated the illegal scheme, which led to unlawful profits of approximately Rs 65.77 crore. The scam involved information sharing between traders at a large US-based fund house, known as the “Big Client,” and Parekh, who utilized his extensive network to execute trades based on non-public information (NPI). SEBI has imposed restrictions on 22 entities involved in the scam, including Parekh, Salgaocar, and Ashok Kumar Poddar, a facilitator in the operation.
SEBI’s investigation, which spanned 20 locations, revealed that Parekh and Salgaocar devised a method to manipulate stock market activities by front-running the trades of the Big Client. According to SEBI’s Whole-time Member Kamlesh Varshney, the operation involved Salgaocar gaining advanced knowledge of the trades to be executed by the Big Client. Salgaocar then shared this information with Parekh, who used it to make illegal profits by executing trades before the Big Client’s transactions were carried out. Both Parekh and Poddar were previously debarred from engaging in securities market activities due to their involvement in the 2000 stock market scam, and SEBI’s latest order bars them from trading or associating with the market indefinitely.
Salgaocar and Parekh’s Front-Running Mechanism Unveiled
The front-running operation was highly sophisticated, involving several market players. Salgaocar, with his extensive connections, had early access to the trade details of the Big Client, a US-based fund. He used this privileged information to find counterparties for the trades by engaging various market participants, including foreign and Indian funds, and Parekh. According to Salgaocar’s own statement, approximately 90% of the Big Client’s trades were fulfilled by Ketan Parekh alone. Parekh passed the confidential trade details to his associates, who executed front-running trades in different accounts, taking advantage of the non-public information to make illicit profits.
SEBI’s investigation uncovered the intricate workings of this illegal operation, where Parekh used his network of Kolkata-based entities to facilitate the front-running. The information was routed through a series of phone calls and WhatsApp chats, which allowed Parekh and his associates to stay a step ahead of the Big Client’s trades. The SEBI report outlined the flow of information from Parekh to his front-runners, who then carried out the trades via their respective accounts. SEBI has also provided a diagrammatic representation of the information flow, showing how the illegal trading activity unfolded within a clandestine network.
SEBI’s Actions and Investigation Insights
SEBI’s investigation has highlighted the novelty of the operation, noting how the flow of non-public information was systematically exploited by Parekh and Salgaocar. Despite being previously banned from participating in the securities market, Parekh leveraged his past connections and extensive market knowledge to orchestrate the scam. SEBI’s findings underscore the risks posed by such schemes, particularly in a market environment where regulatory oversight can sometimes be bypassed.
The regulator has impounded the unlawful profits generated from the front-running activities and imposed immediate restrictions on the involved entities, preventing them from buying, selling, or dealing in securities. This action reinforces SEBI’s commitment to curbing market manipulation and ensuring a fair and transparent trading environment. As the investigation continues, SEBI aims to uncover further details and hold all responsible parties accountable for their role in the front-running scam.
