The second interim report of the Securities and Exchange Board of India (Sebi) has conclusively established that Ketan Parekh (KP) entities were aided an abetted by Credit Suisse First Boston and Dresdner Kleinwort and Benson in creating fictitious deals and artificial market in illiquid scrips.
Making a clear case for clamping down on overseas corporate bodies, Sebi has also examined and found that overseas corporate bodies' deals with KP entities through select brokers were essentially in the nature of circular trading, temporary parking of shares, building up of concentrated positions and circumvention of Sebi takeover norms.
The regulator's investigation of KP's 23 entities has revealed that large funds were given to them by certain banks and corporates which appear to have gone into stock market operations. KP operated these entities with a view to hide the nexus between the source of funds i.e. the corporates and ultimate user of funds in the stock markets.
The funds received from banks as loan and overdrafts were diverted to other entities for acquiring shares or meeting other obligations. The transactions for purchase and sale of shares were done in the name of large number of entities so that concentration of positions in a particular scrip would not be detected. In fact, various layers were created to make it difficult for linking the source of fund with the actual user.
Sebi has prima facie found that the KP entities had violated the takeover norms in the scrips of Aftek Infosys, Global Trust Bank and Shonkh Technologies. It has already initiated action against these entities.
As regards non intermediary entities of KP, Sebi investigations have established prima facie involvement in scrips of Aftek Infosys and GTB. It was also found that entities connected with Singhania, Khemani, Biyani and Poddar groups received large funds from KP between April 1999 and March 2001.
The regulator is awaiting replies from these groups on why the funds were received and how they have been utilised. It said further investigations on KP are being carried out on priority basis and efforts were being made to complete the investigations expeditiously.
During the period April 2000 and March 2001, KP entities had transacted around 470 synchronised sale transactions through Dresdner Kleinwort Benson Securities in illiquid scrips like DSQ Biotech, Shonkh and Mascon. "These synchronised/ structured/ matched/ washed trades created large artificial volumes in these scrips which are otherwise not very liquid stocks," it said.
Sebi has said that this was done to induce others to invest in the scrip at prices benchmarked by KP. The perusal of accounts of KP entities with DKB Securities revealed that the latter was making advance payments to them on the date of sale transactions itself without waiting for payout of funds from the exchange in lieu of sale of securities.
Sebi has therefore concluded that DKB aided and abetted KP entities in putting fictitious trades non genuine trades with a view to create misleading appearance of trading. It has also aided and assisted KP entities in creating artificial volumes and market in certain scrips through circular trades.
Sebi is initiating enquiry proceedings against DKB for fraudulent and unfair trade practices. Similarly, Sebi has found that CSFB Securities and CSFB Proprietary account aided and abetted KP entities. Shares were being rotated from one KP entity to others belonging to him without changing beneficial ownership. It has pronounced CSFB Securities guilty of violating Sebi norms and initiated proceedings against it.
In the case of CSFB Sebi has found that the proprietary account entered into 400 synchronised or matched deals with KP entities between April 2000 and March 2001. Even here the buy and sell transactions were in illiquid scrips like Adani Exports, DSQ Biotech, Nirma, Mukta Arts, Tips, Jaiprakash Industries, Cadila Healthcare and Lupin Lab. This indicated that CSFB Securities helped KP in creating artificial volumes in these scrips.
