The Intelligence Bureau has unearthed a major stock market scam involving big players such as rogue stockbroker Ketan Parekh (KP), ostensibly banned from trading on the bourses till 2017 by securities market regulator SEBI.
The damaging IB report, submitted to the topmost echelons of the government, suggests that KP and his associates are driving up share prices through the creation of false volumes. The 'top secret' IB document states that these manipulators are brazenly continuing "their illegal activities using circular trading, insider trading and use of front entities to rig up prices".
Apart from KP and his cartel, some of the stock market players whose names figure in the IB report are Piyush Sampath and Raju Shah. According to it, the manipulating cartels have been using illegal means to buy shares so that the prices rise in the run-up to an IPO or a qualified institutional placement (QIP). These cartels have bought select shares in volumes that range from lakhs to millions on a single day, causing the stock prices to shoot up despite the bearish trend in stock markets. The shares are offloaded after the QIP or IPO is over and this leads to a sharp fall in the prices of the stock.SPECIAL: How to save yourself from stock mkt scams
The IB document also reveals that the cartels claim to have been in touch with a senior LIC official and some insurance companies to sell the shares to these cash-rich entities. It is intriguing that if the IB has so much evidence against these manipulators, why the SEBI is not actively cutting off their trading lifelines. The extent of the involvement of manipulators as detailed by the damning IB report shows that rogue brokers such as KP are hyperactive despite having been banned. In the past, too, the IB has spotlighted broking cartels led by KP being active.
The report lists seven companies involved in the illegal manipulation, including Dewan Housing Finance Corporation Limited (DHFCL), Goenka Diamond and Jewels Limited, Orchid Chemicals and Pharmaceuticals Limited (OCPL), IVRCL Limited, Pantaloon Retail (India) Limited, Tribhovandas Bhimji Zaveri IPO and GMR Infrastructure Limited.Damaging
According to the report, one of the manipulators claimed that he had been asked to place the shares of a company with insurance firms for which the promoter was willing to give 7.5 per cent of the amount as placement fee.
The highly confidential report further states that during February-March 2012, DHFCL had raised over Rs 300 crore through a QIP. The KP cartel played a crucial role in making the QIP a success as its members bought large stakes during the issue. After the QIP, during March 2012, KP and his associates had accumulated around 1 million shares in order to keep the share price above Rs 240.
In the case of another firm - K.S. Oils Limited - the report states that in the last week of March, the company's board of directors approved the allotment of 33.77 million equity shares to qualified institutional buyers at an issue price Rs 7.25 per share.
KP roped in Singapore-based associate Akshay Natra to participate in the QIP issue for which the latter is reported to have asked for 15 per cent commission of his total investment along with the funds to sink in the QIP, the report discloses. On April 13, Natra bought 1.5 million shares at the issue price of Rs 7.5 per share. Several other KP cartel members also participated in the QIP. On April 15, KP intended to buy 30 million shares of K.S. Oils and asked Ashok (a broker) to make place for the parking shares, the report adds.
According to the IB findings, the shares of Goenka Diamond rose by 47 per cent in April from Rs 79 to Rs 116. During this period, the KP cartel continued to be active in the counter to accumulate a large volume of shares. The IB report states that KP was also active in propping up the share price of Chennaibased OCPL. On April 25, he bought 200,000 shares of the company in the F & O segment at an average price of Rs 184 a share. By the end, KP claimed to have gathered about 2.5 million shares of the pharma firm.
KP and Natra entered into several synchronised trades and mutual trades during April in which they bought and sold Nifty stocks between themselves, leading to a profit of over Rs 1 crore, the document points out. The duo had also shorted 18,000 Bank Nifty during the early part of the month out of which they eventually covered 8,000 Bank Nifty.
The IB has also found that market player Sampath had received insider information that the results of LIC Housing were expected to be poor and the non-performing assets (NPAs) of the company were on the rise. On the basis of this information, Sampath and his associates shorted the scrip at an average price of Rs 158. Consequently, the share price fell to Rs 150.
The IB has noted that Sampath claimed to have received insider information on April 19 that a Mumbai based jewellery company would be entering the market with an IPO to be issued in the price band of Rs 120-Rs 130.
Reacting to the information, Sampath advised several of his associates to go short on the counter as the issue was highly overpriced. Sampath opined that the issue was worth a premium of Rs 40-Rs 50 only on a face value of Rs 10. Then there is the case of Kiri Industries. Its share price witnessed a fall of about 40 per cent as it fell from Rs 102 to Rs 63. Shah claimed that the share price of Kiri Dyes fell sharply owing to offloading by a big bear who had accumulated a large chunk of shares during its QIP.
Shah also claimed that he intended to raise the share price to new highs by creating large volumes in the counter. Similarly, there is evidence of Shah's active involvement in other counters such as Gokul Refoil & Solvent, Sanghvi Forging & Engineering and a top-of-theline jewellery company IPO.
Courtesy: Mail Today