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The Joint Parliamentary Committee has identified former stock broker Ketan Parekh as the main person responsible for the entire stock market scam surfaced in March 2001, payment problem on the Calcutta Stock Exchange as well as the crash of Madhavpura Mercantile Co-operative Bank.
The JPC in its final draft report has said, "He (Parekh) was operating through a large number of entities which facilitated hiding of the nexus between the source of fund and the ultimate use. Various layers were created in his transactions so that it became difficult to link the source of fund with the actual user of fund."
Investigation by the Securities and Exchange Board of India after the scam had revealed that the amount outstanding from Parekh to certain corporate houses at the end of April 2001 was Rs 1,273 crore (Rs 12.73 billion).
Further, Parekh's dues to MMCB were around Rs 888 crore (Rs 8.88 billion) and to Global Trust Bank over Rs 266 crore (Rs 2.66 billion).
Sebi in its investigation had found that there were also dues to other entities.
The fund received from corporates and banks have gone to three major broker groups on the CSE and has been utilised in capital market operations.
"He (Ketan) appears to have chosen CSE mainly to exploit the known weakness of the exchange. He also used a networking of various overseas corporate bodies, foreign institutional investors' sub-account and mutual funds for large transactions," the report added.
"It is difficult to believe that stock exchanges or Sebi were totally unaware of what was going on in the market when Parekh was doing all manipulations using his network," the report noted. During giving oral evidence before the committee, Parekh owned up his involvement in the CSE payment crisis and the crash of MMCB in March 2001.
Parekh also admitted that he did build huge positions in the market in select scrips; he grossly over-committed himself to the market and he crossed the principles of risk management.
Further, he also conceded that certain trades such as the sale of Credit Suisse First Boston and Dresdner Kleinworth Benson, which Sebi described as 'circular trades,' were pre-arranged trades, though he claimed that those trades were meant for short-term funds.
Parekh also acknowledged that he received funds from certain corporate houses and he built huge positions in the market in these companies.
He asserted that he received these money only after the market fall in September 2000 and that the corporate funds were neither for investment in their own shares nor for jacking up prices.
Parekh disclosed that MMCB issued pay-orders without balance in his account.
He also divulged that he paid to the Kolkata-based brokers Rs 3,191 crore (Rs 31.91 billion) towards the purchase of share, payment of margin etc and acknowledged that he availed of the advantage of the faulty margin system on the CSE. All these admissions by Parekh corroborate the Sebi findings.
The JPC noted that Sebi has since taken action to cancel the registration of Triumph International, which is associated with Parekh.
The committee has now urged the Sebi to complete its investigation expeditiously and take action against various violations by Parekh and his entities including criminal action which is stated to be under contemplation.
The JPC has also urged the government to take all necessary steps to finalise proceedings against Parekh and ensure that suitable punishment is awarded to him without delay.
The report also adds that an early deterrent punishment will go a long way in establishing a suitable atmosphere in the market.
The JPC also urged that expeditious action should be taken to ascertain the fact regarding the Swiss Bank account of Parekh and to follow up the matter.