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CBI arrests stock broker Ketan Parekh

Our Correspondents in Bombay & Calcutta
and Onkar Singh in New Delhi

The Central Bureau of Investigation arrested leading stock broker Ketan Parekh in connection with the Bank of India's Rs 1.30 billion pay order scam on Friday evening.

"We have arrested him for defrauding the bank," a CBI official attached to the bank fraud and securities cell said.

The Central Bureau of Investigation has filed charges against Bombay-broker Ketan Parekh. The CBI officials began questioning Parekh in the afternoon after he defaulted on pay orders to the Bank of India for more than Rs 1.30 billion.

The Central Bureau of Investigation confirmed that Ketan Parekh was arrested at 4 p.m. (IST) after the CBI special investigating unit headed by joint director J C Davas raided 11 office premises of the stock broker and seized documents relating to the pay-order scam.

S M Khan, the CBI spokesperson said: "Yesterday we received a complaint from the Bank of India's chief vigilance officer S K Goel who said that Ketan Parekh, along with two others, had defrauded the bank to the tune of Rs 1.37 billion. However, during the investigation it was found that the figure may touch Rs 8.43 billion."

To be produced in court on Saturday

The investigation is still on and Parekh is being interrogated in Bombay, Khan said.

Parekh will be produced in court on Saturday.

The CBI does not rule out the connivance of some bank officials who may have lent a helping hand to Parekh and his cohorts.

"The modus operandi adopted in the pay-order scam is the same as was adopted by Harshad Mehta and few other brokers in the bank security scam in 1992," added Khan.

He also indicated that some top brokers whose names were doing the rounds after the stock market crash might also be arrested.

Parekh's kin held too

Meanwhile, Kirti Parikh and Kartik Parikh -- relatives of Ketan Parekh -- were also arrested and will be produced the court on Saturday in Bombay.

All of them have been charged with defrauding the banks under section 467 of Indian Penal Code and another case against them has been filed under section 420 which pertains to cheating and forgery.

The CBI chargesheet comes a week after some of Bombay's top brokers, including Parekh, were raided by officials of the Income Tax Department, the Enforcement Directorate and the Directorate of Revenue Intelligence.

The case was registered after Bank of India filed a complaint with the bank security and fraud cell of the agency that Ketan Parekh had defrauded the bank.

As the Rs 8.43-billion scam hit some leading banks and stock markets on Friday leading to the arrest of Ketan Parekh, yet another chapter unfolded in scam at the bourses.

As the staggering magnitude of the scam became clearer, CBI raided several premises of Parekh and others before arresting him in the evening in a scam that had shades of the securities scandal that hit the stock market in 1992.

Finance Minister Yashwant Sinha said in Delhi that market regulator Sebi was looking into the issue, indicating some action could be taken only after its enquiry was over.

Reports said the other affected banks could be State Bank of India and Punjab National Bank.

Among the institutions raided by CBI for their links with Ketan Parekh were Panther Investment Traders, Panther Fincop and Management Service, Classic Pvt Ltd, Chitrakoot Computers Pvt Ltd and Nakshatra Software Pvt Ltd, besides residential premises of three bank officials and Mandvi branch of Bank of India and the Madhavpura Bank.

CBI sources said the role of some of the officials who had allegedly helped Ketan Parekh in the "shady" transactions also being probed.

'Bank of India may take a Rs 1.3-billion hit'

Bank of India chairman K V Krishnamoorthy said that the scam may cause the bank to "take a hit" of Rs 1.30 billion for which it will have to make a provision.

Though Krishnamoorthy expressed doubts over the recovery of the amount, he said: "The money may come in the month of April."

The bank chairman said the BoI chief vigilance officer's report detailing the modus operandi of the pay order scam was discussed at the meeting of managing committee of the bank.

He said earlier when Parekh was asked about the repayment of the entire amount, he had said he would try to adjust it.

Asked what action he proposed to take against the Big Bull in the transaction relating to Bank of India, the finance minister said he was not going to keep track of every transaction that takes place.

In the Bombay Stock Exchange, counters like Himachal Futuristic, Global Tele-Systems, SSI Ltd, DSQ Software, Zee Telefilms, Silverline, Pentamedia Graphic and Satyam Computer, in which Parekh has high stakes, bore the brunt of investors wrath.

'It is premature to say anything...'

Dharmesh Doshi, partner in Ketan Parekh's Triumph International Finance, when contacted over the issue of Ketan Parekh's arrest said: "I doubt whether he has been arrested. Yes, he was taken away for questioning by the CBI this afternoon from his Radha Bhawan office. I think he has been taken to the CBI's White House office.

He dismissed the statement that the amount of pay-order scam could be beyond Rs 8 billion, saying that there was no basis for arriving at such figures. "These are just rumours."

He accepted that the pay-orders had been dishonoured, but said that he was not aware of the implications of the event.

"Primarily, the clearing house of the bank has stopped payment against these pay-orders," he said.

"If the payable amount is decided, then we shall see what course of action to take," he said, when asked if they had the money to pay up.

"He did not expect such an event... If one has an inkling of such an eventuality, one would not remain in one's office…" said Doshi when asked if Ketan Parekh had expected to be arrested.

"It is premature to comment on this any further," he said, refusing to elaborate.

Markets jittery

The talk of the involvement of big bull Ketan Parekh in the Madhavpura Co-operative Bank pay-order scam and his arrest by the CBI took heavy casualties on the bourses again on Friday as domestic operators and speculators resorted to all-round heavy selling, particularly in the K-10 counters.

Players who have been already under pressure of hefty margins, unloaded their stocks following reports that Bank of India which has lost Rs 1.30 billion in the pay order scam, has traced the orders to leading stock broker Ketan Parekh and was planning to file a criminal suit against him.

With Parekh's name in the news, Himachal Futuristic, Global Tele, Zee Tele, SSI and few others, in which he has high stakes, suffered a sharp setback on continuous selling pressure.

Meanwhile, on the CSE, president Kamal Parekh, vice-president K K Daga and six other directors resigned after the payment troubles which gripped the bourse for the last three settlements.

Additional inputs: Agencies

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