Sebi bans notorious trader Ketan Parekh for front-running scam: What was his modus operandi?

India’s Securities and Exchange Board (Sebi) has uncovered a significant front-running scam in the securities market, barring 22 entities, including Singapore-based broker Rohit Salgaocar and stock broker Ketan Parekh, for their alleged involvement.

Front-running is an illegal stock market practice where entities use advance information from brokers or analysts to trade before the information becomes public, gaining an unfair advantage.

In an interim order, Sebi directed the impounding of approximately Rs 66 crore in wrongful gains from the accused.

Parekh and Salgaocar’s modus operandi

Sebi’s investigation established a pattern in which Salgaocar, a consultant to Tiger Global for certain trades, relayed inside information to Parekh, who then disseminated instructions through WhatsApp groups.

The probe revealed that Parekh, Salgaocar, and others were not only engaging in front-running trades but were also active buyers when venture capital firm Tiger Global sold shares of PB Fintech, the parent company of Policybazaar.

On November 11, 2022, two Tiger Global funds sold a combined 52.5 lakh shares of PB Fintech on the Bombay Stock Exchange (BSE).

Sebi’s 188-page order cited evidence, including group chat screenshots, where Parekh allegedly issued trading instructions based on insider information.

SEBI’s order identified entities such as GRD Securities Limited, Salasar Stock Broking Limited, and Anirudh Damani as having matched trades for 20.61 lakh of those shares. In total, Tiger Global sold 1.23 crore PB Fintech shares in 2022, including 32.84 lakh shares on the National Stock Exchange (NSE) at Rs 388.34 per share.

The entities mentioned above have also been banned for acting in collusion with Parekh for the illegal trades.

How was the scam revealed?

The scam was uncovered during a search and seizure operation at 20 locations across Kolkata and Mumbai.

All accused entities have reportedly confessed to their roles in the scheme, SEBI said in its order.