2 days ago
The Securities and Exchange Board of India (SEBI) has issued an interim order cum Show Cause Notice (SCN) in a ₹65.77 crore front-running scam, naming disgraced stock market operator Ketan Parekh and Singapore-based trader Rohit Salgaonkar as the key players.
The scam leveraged non-public information (NPI) related to trades by a major US-based fund house, referred to as the "Big Client," whose funds are registered as Foreign Portfolio Investors (FPIs) in India.
SEBI order highlights modus operandi
The order details how the scheme was orchestrated:
"Noticees no. 1 and 2 i.e., Rohit Salgaonkar and Ketan Parekh devised the entire scheme to unjustly enrich themselves by orchestrating front-running activities. Traders of the Big Client were discussing with Rohit Salgaonkar prior to executing trades, and such information was prima facie encashed by Salgaonkar by sharing the same with Ketan Parekh."
SEBI added that Parekh systematically utilised this information: "After receiving specific and timely instructions, directly or indirectly, from Ketan Parekh, the FRs used to execute orders and made unjust profits. Noticee no. 2 i.e., Ketan Parekh is not an ordinary person. He was debarred from the securities markets for 14 years earlier also."
SEBI’s observations on information flow
According to the order, Rohit Salgaonkar, owing to his connections, had access to NPI about trades planned by the Big Client. It notes:
"The dealer of the Big Client provides me with the name of the stock they are interested in. I check the availability with different market participants, including foreign funds, Indian funds, other holders of the shares and lastly Ketan Parekh. Around 90% of the Big Client trades were being fulfilled by Ketan Parekh alone," Salgaonkar admitted.
Ketan Parekh, using pseudonyms like “Jack,” “Jack New,” and “Boss,” received this information through WhatsApp and passed on specific trading instructions to execute the trades via his extensive network.
It further highlighted: "Prior to execution of suspicious trades, FRs were receiving trade instructions through WhatsApp chats or calls from a person whose contact number(s) was saved in the devices as Jack/Jack New/Jack Latest New/Boss, etc. Upon analysis of these contact numbers, it was found that these numbers belonged to Ketan Parekh."
A diagrammatic representation of information flow from Ketan Parekh to FRs (Source: SEBI)
SEBI clarified that while Motilal Oswal and Nuvama Wealth Management facilitated Big Client trades, no evidence of wrongdoing was found against them. The SCN stated: "The trades of the Big Client undertaken through Nuvama and Motilal matched with trades of FRs. However, no evidence implicating these trading members in the alleged fraud has been discovered."
The order raised critical questions for the accused, including- the source and handling of NPI, the mechanics of trading instructions communicated through WhatsApp, details of profit-sharing arrangements among collaborators.
