Why a 1000cr scam was publicized as a 40,000cr scam?

We’ve all heard stories about the infamous stock market scams and seen many movies and series based on them. Some watch them for entertainment, some watch them for gaining more insight, and some like me watch them for research purposes. As a finance student and stock market enthusiast, I was very intrigued by knowing how a common man like Harshad Mehta became the stock market king. As my research progressed, I also came across the details of the 2001 stock market scam.

The articles that led me to start my research mentioned very odd statements which I am not sure why nobody noticed, most notably why a 1000cr scam was publicized as a 40,000cr scam. I am going to cover all the shocking details in my article, so keep reading till the end.

Why was the scam publicized as a 40,000cr scam?

Ketan Parekh is one of the most influential players in the Indian stock market who needs no introduction. However, if you want to learn more about him, you will only come across the 2001 stock market scam stories! How can a person’s whole existence get limited to just his mistakes?

The more surprising element of all the content published was the amount of the scam they all were mentioning! How can anyone say that it was a 40,000-crores scam when even the market’s value was not this huge during the period when the scam came to light?

At that time, the Reserve Bank of India allowed merchants to obtain a credit of about 15 crores. In March 2001, Madhavpura Mercantile Commercial Bank issued pay orders of around Rs. 137 crores. These companies had accounts with the Bank of India, which discounted the pay orders.

But in 2001, the Reserve Bank of India stepped in and gave the Bank of India the bouncing pay orders back. Due to a lack of funds, Madhavpura Mercantile Cooperative Bank could not process the payments. MMCB was designated a defaulter by the RBI, costing the bank 137 crores. Only Rs. 7 crores of Ketan Parekh’s debt were repaid, prompting a 130-crore rupee fraud lawsuit against him.

There is absolutely no way for the scam to be as huge as 40,000 crores to think it logically! Even the biggest stock market scam India had seen, the Harshad Mehta Scam was approximately ₹5,000 crores.

Before writing this article, I also referred to many financial YouTubers to verify the stats, but the same case is repeated in every video. It is hilarious to see people sharing content without any proper detailed research.

How did this scam take place?

Ketan Parekh was a firm believer in the ICE industry (Information, Communication, and Entertainment) during the dot-com boom years of 1999 and 2000. This enabled him to show many more investors that his estimates were accurate. Various investment firms, foreign corporations, banks, and entrepreneurs entrusted him with their money while Ketan Parekh commanded the stock market from 1999-2000.

Because there were no basic rules and regulations, Ketan Parekh traded on the Kolkata stock exchange. He also hired numerous additional brokers to trade on his behalf and pay the commission. With these large quantities of money, he would buy stakes in some lesser-known companies, causing their share prices to skyrocket and making them the talk of the town overnight. He would sell the shares once the price hit a specified level, reaping huge profits.

He began by acquiring Madhavpura Mercantile Commercial Bank shares to gain the bank’s trust when he sought a loan in the form of Pay Orders. He pursued other financial institutions, such as UTI, to guarantee pay orders, which included their investments in HFCL.

The events that followed after the interference of RBI are well-known: Ketan was arrested and tried in court. He served time in prison and was prohibited from trading in the Indian Stock Exchange for over a decade. If Ketan was prohibited then how can some videos on the internet claim that he was still active and was still manipulating the stock market?

This shows how some individuals, just for the sake of content, can publish anything without thinking about the circumstances somebody has to face and if it will impact person’s image in the society!

Who is Ketan Parekh?

So who is this person about whom I’m writing this article after all?

Ketan Parekh was also known as the ITC Bull of his time for his ability to predict the trading pattern of ITC consistently and accurately.

Growing up, Ketan’s father was his role model and his introduction to the world of trading. His father was known to be a decisive “jobber,” someone who is a market maker, giving bids and offers of particular securities to boost market liquidity. His skill and understanding of the market inspired Ketan to be the best in his field.

However, unlike his father, Ketan was a risk-taker, willing to bet on the opportunities presented by newer ventures. The software and telecom companies of the late 1990s and early 2000s presented one such opportunity. Ketan put a considerable amount of time into studying the companies and understanding their plans and prospects. He identified growth opportunities and worked with financial institutions and high-net-worth individuals across India to take companies globally and help them raise funds to become debt free.

In 2001, ICE (infotech, communications, and entertainment) stocks took a savage global bear hammering and turned the tide on his fortunes. Ketan was trapped, triggering off a payment crisis on the bourses, and forced to default on his payment obligations to banks.

Ketan went behind the bars and worked relentlessly for years to return the money he owed. Following the court orders and being a law-abiding citizen, only a few close ones know how he has repaid most of the borrowed funds and fulfilled his obligations as set by the Supreme Court. At the same time, a few transactions are still being reviewed. Sadly, no one was interested in knowing this; it remained a lesser-known fact for years. Instead of running away to another country to live a free life, like some high profile names, he is still working on these corrective measures and is doing what is right.  

It is high-time know people learn the truth and banish all the fake content that comes mere as masala gossip and prejudice of the society!