New Delhi: India’s stock market regulator has again found Ketan Parekh, the infamous stock broker previously imprisoned and banned from the markets for one of the country’s biggest stock market scams during the turn of the century, to be the lynchpin of yet another case of stock market illegality.
The Securities and Exchange Board of India Thursday passed an interim order against Parekh, saying that he passed on non-public information (NPI) to his partners so they could make illegal trades for abnormal profits. As part of this scheme, SEBI found that his alleged partners-in-crime saved his name as ‘Mamta Bhabhi’, ‘Wellwisher’, ‘Boss’, ‘Bhai’, and ‘Jack’ among others, to shield his identity.
What is particularly notable about the case is the relatively low-tech way that the SEBI could establish this white-collar crime, tracking down phone numbers, ascertaining locations, correlating them with Aadhaar, and obtaining data from airlines and hotels.
SEBI’s interim order impounded roughly Rs 65.77 crore from 22 entities, including Parekh and Singapore-based trader Rohit Salgaocar, for alleged front-running activities between 1 January 2021 and 20 June 2023.
Front-running is the illegal act of entering into a securities transaction, be it in stocks, futures, options, or any other financial instrument, based on non-public information about a large impending transaction that would significantly influence the price of the security the front-runner has transacted in. The aim is to use information that is not, so far, public to make abnormal profits in the securities markets.
SEBI found that several trades associated with a US-based foreign portfolio investor, not named but referred to as ‘Big Client’ instead in the order, had the hallmarks of front-running activity.
Based on its suspicions, SEBI then launched an investigation into the matter and conducted a court-approved search and seizure operation over three days, starting 22 June 2023, across the premises of 17 entities. During the seizure, it gathered documentary and electronic evidence and statements from the noticees.
“Based on the evidence collected during the search and seizure operation, it as prima facie suspected that, in addition to traditional front-running, the Frontrunners (FRs) used complex trading strategies to take advantage of the prior knowledge of the impending trades of the Big Client,” the interim order said.
From Salgaonkar to Parekh and on to profits
The investigation found that Salgaocar dictated the large orders placed by the ‘Big Client’, specifying details, such as the stock to be traded in, the time of the transaction, the quantity, and the price of the order.
For every stock market transaction, there needs to be a party and a counter-party, just as in a conventional market, there is a buyer and a seller for every transaction. Salgaonkar had the task of finding the counterparties for the various trades the ‘Big Client’ wanted to do.
He found these counterparties through different market participants, including foreign funds, Indian funds, other holders of the shares, and Parekh. What was significant, said the SEBI report, was that Salgaonkar admitted in his statement that Parekh alone accounted for 90 percent of the ‘Big Client’s’ orders.
“It was observed that the NPI relating to impending orders of the Big Client was being passed from Rohit Salgaocar to Ketan Parekh, who in turn used to communicate trading instructions based on such NPI, directly or indirectly, to the six FRs for execution in order to gain undue profits (sic),” the order said.
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Matching names to numbers
Following the search and seizure operation conducted by it in June 2023, SEBI obtained all the material it needed to prove the alleged illegality.
From the back-ups of the seized phones, SEBI found that several of the front-runners had saved Parekh’s name on their phones under various pseudonyms such as “Jack”, “John”, “Boss”, “Bhai”, “Wellwisher”, and even “Mamta Bhabhi”, the last of which is likely a reference to Parekh’s wife Mamta Parekh. Parekh himself had allegedly used 10 different phone numbers to contact these front-runners.
Incredibly, some of the incriminating evidence was inadvertently provided by Parekh himself.
Parekh had visited the SEBI office in March 2023 in relation to another matter. During the visit, as proof of identity, he had submitted a copy of his Aadhaar, which also contained one of the phone numbers he used to allegedly pass on the front-running tips. Further, in the visitor slip during that visit, he wrote down one of the other numbers he used, which SEBI has also linked to the front-running activities.
Separately, SEBI also used the International Mobile Equipment Identity (IMEI) number of the seized handsets to find that several of the 10 numbers were being used from the same devices.
Through this matching of IMEI numbers and from the statements of Salgaonkar, SEBI was able to confirm that all 10 numbers did indeed belong to Parekh.
Locations, travel, hotels and birthday give it all away
In order to be absolutely sure, SEBI also used other means to establish that the phones belonged to Parekh.
“The CDRs (call detail records) of various contact numbers associated with Ketan Parekh were analysed to identify the location of the said numbers at the night time (i.e. from 9:00 pm to 6:00 am) during the investigation period,” the order said.
“It is revealed that all the mobile numbers were located at the home address of Ketan Parekh on most occasions,” it added.
According to Parekh’s own statement to SEBI, he used to regularly change his numbers and would obtain new numbers in the names of other people.
The gold mine of evidence from the location data didn’t end there. SEBI further found that, on several occasions, the locations of the phone numbers were in hotels around the country, ranging from Kochi and Jaipur to Vadodara and Kolkata. On contacting these hotels, SEBI was told that Parekh and his wife had visited during the relevant dates, and had submitted their Aadhaar as proof of identity.
SEBI even obtained data from airlines to confirm that it was Parekh who travelled during the relevant dates, and linked that travel to his stay in the hotels.
The slip-ups didn’t end there
“From the WhatsApp chat available in the mobile device of Sanjay Taparia (one of the noticees in the order), it is seen that he wished birthday to “Jack Latest” (mobile number of Jack Latest being XXX5555484) on February 15, 2023 who responded by thanking him,” the order said.
“It is noted that the birth date of Ketan Parekh as mentioned on his PAN Card is also February 15, 1962,” it added. “This further proves that “Jack Latest” is none other than Ketan Parekh and mobile number XXX5555484 is used by Ketan Parekh.”
After satisfying itself that these numbers did indeed belong to Parekh, SEBI then used the backup details of the phones to find all the messages he sent the alleged front-runners, their contents, and the mechanics of the front-running activity.
(Edited by Madhurita Goswami)