The Ketan Parekh Scam|Finance|Case Study|Case Studies

The Ketan Parekh Scam

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Case Details:

Case Code : FINC006
Case Length : 9 Pages
Period : -
Pub. Date : 2002
Teaching Note : Available
Organization : SEBI
Industry : Finance
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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The Man who Trigerred the Crash

KP was a chartered accountant by profession and used to manage a family business, NH Securities started by his father.

Known for maintaining a low profile, KP's only dubious claim to fame was in 1992, when he was accused in the stock exchange scam.5

He was known as the 'Bombay Bull' and had connections with movie stars, politicians and even leading international entrepreneurs like Australian media tycoon Kerry Packer, who partnered KP in KPV Ventures, a $250 million venture capital fund that invested mainly in new economy companies.

Over the years, KP built a network of companies, mainly in Mumbai, involved in stock market operations.

Finance | Case Study in Management, Operations, Strategies, Finance, Case Studies

The rise of ICE (Information, Communications, and Entertainment) stocks all over the world in early 1999 led to a rise of the Indian stock markets as well.

The dotcom boom6 contributed to the Bull Run7 led by an upward trend in the NASDAQ.8 The companies in which KP held stakes included Amitabh Bachchan Corporation Limited (ABCL), Mukta Arts, Tips and Pritish Nandy Communications.

He also had stakes in HFCL, Global Telesystems (Global), Zee Telefilms, Crest Communications, and PentaMedia Graphics KP selected these companies for investment with help from his research team, which listed high growth companies with a small capital base. According to media reports, KP took advantage of low liquidity in these stocks, which eventually came to be known as the 'K-10' stocks...

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5] When the interest rates were freed in mid-1989, it made the price of both bonds and money more volatile, and increased the link between the securities and money markets. With price volatility and increased volumes, securities broking became a profitable activity. The rising volumes were funded by banks through bank receipts (BR is a document issued by a bank acknowledging that it has sold certain government securities to a party and received payment). The scam came to light when RBI asked the SBI to show the bank receipts, and it was found that Rs 6.22 billion not been reconciled and was untraceable. The money involved in the scam was eventually ascertained to be well over Rs 30 billion.

6] The e-commerce revolution had led to a massive upsurge in the value of technology stocks across the globe, especially Internet ventures. This came to be known as the dotcom boom.

7] A bull run is an uptrend in the stock markets caused by the rise in the price of shares, sustained by buying pressure of actual investors or news of favorable economic growth, decontrol and political developments.

8] The National Association of Securities Dealers Automated Quotation System (NASDAQ) is a US-based stock exchange, which comprises largely of technology stocks. Started in 1971, NASDAQ is the first screen-based, floor less trading system and the second largest stock market in the US.


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