Front-running case: SEBI impounds ₹65.77 cr from Ketan Parekh, 21 others

A probe by SEBI has found a front-running scam involving Ketan Parekh, a stock trader jailed and subsequently banned from the securities market for 14 years in the year 2000, Singapore-based trader Rohit Salgaocar, and 20 other entities. After its probe, the regulator ordered to impound unlawful gains of around Rs 65.77 crore from these 22 entities.

The order issued by SEBI's whole-time member Kamlesh Varshney says both Parekh and Salgaocar devised the whole scheme to "unjustly enrich from the NPI pertaining to the "Big Client" by orchestrating front running activities.

The order says Rs 65,77,11,547, being the total unlawful gain earned from the alleged violations, will be impounded, and the noticees are directed to credit or deposit the amount to interest bearing savings account(s) created specifically for the purpose in a scheduled commercial Bank.

The noticee no. 10, Ashok Kumar Poddar, has admitted to be a facilitator in the front running activities, says SEBI. Parekh and Poddar had been prohibited from dealing in the securities and debarred from associating with the securities market in the past as well, says SEBI.

"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," says the regulator.

SEBI says banks, where noticees no. 1 to 22 are holding bank accounts, will be directed that no debits will be made, without the permission of SEBI, except for the purposes of transfer of funds to the interest bearing savings account(s) as stipulated above.

Depositories will also be directed that no debit will be made, without the permission of SEBI, in respect of the demat accounts held by them.

SEBI says debits in the bank accounts may also be allowed for amounts available in the account in excess of the amount to be impounded.

Noticees can't also not dispose of or alienate any of their assets/properties, till such time the amount of unlawful gain is recovered. They will also provide a full inventory of their assets. If they have any open position in any exchange-traded derivative contracts, they can close out in the next 3 months.

The SEBI probe

The SEBI order says the traders of the "Big Client" (a fund house where he had connections) were discussing with Rohit Salgaocar prior to executing trades and such information was prima facie encashed by Salgaocar by sharing the same with Parekh. While the traders of the "Big Client" were discussing trades with Salgaocar for ensuring counterparties for their trading, Rohit Salgaocar was using that information to make illegal profits by routing information to Parekh. When the information reached Parekh, he acted in a systematic manner and trades were executed in different accounts which cumulatively generated unlawful profits.

Parekh used pseudonyms and WhatsApp chats to communicate trade instructions on non-public information (NPI) to front runners. "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. The facts and evidences which prima facie establish the suspected modus operandi are discussed in the subsequent paragraphs," SEBI says.