SEBI unearths front-running scam involving Ketan Parekh, others; impounds Rs 65.77 crore in unlawful gains

The market regulator, Securities and Exchange Board of India (SEBI), has unearthed an unusual front-running scam involving Ketan Parekh, Singapore-based trader Rohit Salgaonkar and others in the extended front running case. 

According to an order issued on January 2, SEBI found Parekh and Salgaocar devise the scheme, and impounded unlawful gains of around Rs 65.77 crore. The order was passed against 22 entities. 

The scam leveraged non-public information related to trades by a major US-based fund house whose funds are registered as Foreign Portfolio Investors (FPIs) in India.

“Noticees no. 1 and 2 i.e. Rohit Salgaocar and Ketan Parekh devised the entire scheme to unjustly enrich from the NPI pertaining to the Big Client by orchestrating front running activities. Noticee no. 10 has admitted to be a facilitator in the front running activities. Further, Noticees no. 2 and 10 i.e. Ketan Parekh and Ashok Kumar Poddar had been prohibited from dealing in the securities and debarred from associating with the securities market in the past as well. Considering the same, Noticees no. 1,2 and 10 shall be restrained from buying, selling or dealing in securities or associating with any intermediary registered with SEBI, either directly or indirectly, with immediate effect,” the order issued by Kamlesh C Varshney, Whole Time Member of SEBI said. 

As per the order, Salgaonkar, owing to his connections, had information about trades that were to be taken by a big US fund house. He used to find counterparties for the big fund house’s trades through different market participants including foreign funds, Indian funds, other holders of the shares and Ketan Parekh. However, as per a statement made by him, around 90 percent of the Big Client trades were being fulfilled by Ketan Parekh alone. 

The SEBI order stated, “Traders of the Big Client were discussing with Rohit Salgaocar prior to executing trades and such information was prima facie encashed by Rohit Salgaocar by sharing the same with Ketan Parekh. While the traders of the Big Client were discussing trades with Rohit Salgaocar for ensuring counter parties for their trading, Rohit Salgaocar was using that information to make illegal profits by routing information to Ketan Parekh. When the information reached Ketan Parekh, he acted in a systematic manner and trades were executed in different accounts which cumulatively generated unlawful profits.” 

“The directors of various companies are also liable to be proceeded against for the unlawful profits that accrued to the Noticees and are held jointly and severally liable with their respective companies, by virtue of section 27 of the SEBI Act, 1992,” the order noted. 

The regulator in its order said that an amount of Rs 65,77,11,547 (sixty five crore seventy seven lakh eleven thousand five hundred forty seven), being the total unlawful gain earned from the alleged violations, shall be impounded. 

It directed the noticees to credit/deposit jointly/severally the aforesaid amount of unlawful gains to interest bearing savings account(s) created specifically for the purpose in a scheduled commercial bank and the amount kept therein shall not be released without permission from SEBI. 

The regulator also gave 21 days to the noticees to file their replies from the date of receipt of the order.