The Securities and Exchange Board of India (SEBI) has discovered a sophisticated front-running scheme masterminded by notorious stock market operator Ketan Parekh in conjunction with Singapore-based trader Rohit Salgaocar. On January 2, SEBI issued an elaborate interim order exposing the details of this financial manipulation and froze ill-gotten gains worth ₹65.77 crore.
The inquiry conducted by the regulator covered more than 20 locations and found a highly structured operation of over 22 accused entities. He is noted for his role in the securities market scam in 2000. Salgaocar allegedly used his excellent relationships with a leading fund house to fraudulently enrich the profits made through confidential trading information.
There was a scheme of deception as a coordinated mechanism.
Whole-time Member, Kamlesh Varshney, of SEBI stated the modus operandi in the order saying, “Rohit Salgaocar and Ketan Parekh created an intricate design to abuse NPI related to the Big Client by facilitating front-running operations. Notice No. 10, Ashok Kumar Poddar, had accepted that he was acting as a facilitator in the aforementioned unauthorized operations. Parekh and Poddar were prohibited from dealing in securities before.
The directive further mandates an immediate embargo on the trio—Salgaocar, Parekh, and Poddar—barring them from engaging in securities trading or associating with any SEBI-registered intermediaries.
The Anatomy of the Scam
During the investigation, it emerged that Salgaocar got access to trading strategies because he was a key contact of the big US-based fund house. Those details were transmitted to Parekh, who communicated them to other accomplices and they carried out trades based on the strategies before the move of the US-based fund house. Parekh’s accomplices, using such secret communication avenues as WhatsApp and phone calls, conducted trades aimed at anticipating and benefitting from market moves of the US-based fund house.
A shocking 90% of the Big Client’s trades were reportedly channeled through Parekh’s nexus. These transactions were systematically routed via accounts controlled by six identified front-runners, enabling the generation of significant illicit profits while evading regulatory scrutiny.
Innovative Mechanisms and Tactical Maneuvering
The novelty of the scam lies in its intricate web of information flow and execution. Parekh used his entrenched Kolkata-based network to front-run trades, operating under the regulatory radar. Salgaocar’s strategic positioning within the market allowed him to coordinate with various participants, including foreign and domestic funds, to orchestrate the trades seamlessly.
SEBI presented a diagrammatic presentation of the information flow chain that explained how Parekh was the nodal point of this intricate process. Trades were executed through various accounts so that the operation was not identifiable in terms of scale and would keep running till the intervention by SEBI.
A Continuing Legacy of Malfeasance
Ketan Parekh’s return to infamy shows that he can still play around with the financial system. While his previous offenses got him a 14-year ban from the markets, his knack for exploiting the weaknesses in the securities ecosystem has become a warning to regulators and market participants.
As SEBI continues its drive, the fact-finding into this case puts across the significance of effective surveillance and rigorous enforcement in preserving market integrity.
