Market News

Ketan Parekh looked into the “Pump and Dump” system used by Harshad Mehta in-depth. The Big Bull illegally received money from banks and other financial institutions. He used these funds to directly or indirectly buy certain stocks in bulk, whose prices would then skyrocket. Market participants had the perception that whichever stock the Big Bull chose would turn into gold. Eventually, more people would invest in these stocks, further driving up prices. When the prices reached their peak, Mehta and his associates would book MASSIVE profits! Parekh wanted to use the same system to his advantage…. but with a few tweaks. He strongly believed in the potential growth of companies within the Information, Communication, and Entertainment (ICE) sector.

The dot-com boom had just started between 1999 and 2000, and many of his stock predictions were pretty accurate. He was able to pump up the share prices of several firms. However, Ketan Parekh wanted to take it a step further, and encouraged institutional investors to invest in stocks he had manipulated. He felt that it would be easier to control major institutional investors rather than retail investors who had varying interests and views.

So How Did He Convince Institutional Investors?

Upon further research, Ketan Parekh found out that institutional investors would only invest in those stocks that had high trading volumes and media attention. To fulfill the first criteria, he resorted to an illegal circular trading scheme:  For example, Broker A would place a buy order for a stock at a certain price and certain quantity. At the same time, Broker B places an order to sell the same quantity, at the same price, and matches the trade. Likewise, more brokers would join and conduct similar transactions, thereby showing high trading volumes.

Parekh and his associates conducted circular trading primarily on IT, media, and telecom stocks that were already growing rapidly and getting media attention. Thus, Ketan Parekh’s “K10 Stocks” became widely popular. It included Zee Telefilms, Tips, Aftek Infosys, Mukta Arts, Himachal Futuristic Communication Ltd (HFCL), PentaMedia Graphics, etc. K10 stocks like PentaMedia Graphics’ price surged from Rs 175 to Rs 2,700 and that of Global Telesystems rose from Rs 185 to Rs 3,100! Moreover, he conducted most of the investments/trades in the Calcutta Stock Exchange (CSE) as it did not have any strict regulations at the time. He artificially created a 200% annual return on some stocks!  The Downfall Just like his predecessor and mentor, Ketan Parekh became too greedy. He wanted to obtain more funds to pump up stock prices on a larger scale.