Ketan Parekh Scam 2001
The Ketan Parekh scam of 2001 involved the artificial inflation of a concentrated group of technology and media stocks known as the K-10, funded through pay orders and co-operative bank loans, ultimately triggering a market crash and fresh regulatory overhaul.
Ketan Parekh was a Chartered Accountant turned broker who built close relationships with promoters of several companies in the technology, media, and entertainment sectors during the dot-com boom of the late 1990s. He identified a concentrated portfolio of ten stocks that came to be called the K-10: Himachal Futuristic Communications, DSQ Software, Aftek Infosys, Global Tele-Systems, Pentafour Software, Zee Telefilms, Crest Communications, Tips Industries, Pritish Nandy Communications, and Visual Soft. His scheme involved creating circular trading — buying and selling K-10 stocks between interlinked entities to manufacture artificial volumes and price momentum.
The funding mechanism differed from the 1992 scam. Parekh obtained large pay orders, essentially guaranteed bank instruments, from co-operative banks — particularly the Madhavpura Mercantile Co-operative Bank and several Gujarat-based co-operative banks. These pay orders were discounted at other banks to raise cash, which was then deployed to buy more K-10 shares. Some K-10 stocks rose by 500 to 2000 percent between 1999 and early 2000.
The dot-com bust in early 2000 began eroding confidence globally. By early 2001, Indian markets faced additional selling pressure as the circular trading structure could not be sustained. Prices of K-10 stocks collapsed, and the co-operative banks that had extended unsecured facilities faced non-performing assets. Madhavpura bank eventually failed, causing losses for hundreds of thousands of depositors who held savings there.
SEBI investigations revealed that Parekh had also operated in the Calcutta Stock Exchange, where lax oversight and informal settlement systems provided additional avenues for manipulation. Several promoters of K-10 companies who had allegedly colluded with Parekh were also charged.
The scam led to significant reforms: SEBI introduced stringent circuit breakers, tightened margin requirements for brokers, imposed restrictions on bank financing of stock market activities through co-operative banks, and accelerated implementation of the Unique Client Code system for broker-level tracking. Ketan Parekh was banned from trading in Indian securities markets and faced multiple criminal proceedings. The episode illustrated how co-operative bank regulation gaps could be weaponised and prompted the RBI to tighten oversight of co-operative banks' lending against shares.