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The Securities and Exchange Board of India (SEBI) recently concluded a significant investigation into a ₹65.77 crore front-running scam, implicating the infamous stock market operator Ketan Parekh, notorious for his role in the 2001 stock market crash. This investigation revealed a sophisticated network leveraging insider information to generate substantial illegal profits. The unraveling of this scheme highlights the effectiveness of modern investigative techniques, specifically the utilization of digital footprints and communication records in exposing complex financial crimes. The core of the scam involved the exploitation of non-public information (NPI) related to the trading activities of a large US-based fund, referred to as the 'Big Client'. This information was obtained and disseminated through a network of individuals and entities intricately connected to Parekh.
A key figure in this network was Rohit Salgaocar, who acted as a conduit between the Big Client's trading activities and Parekh. Salgaocar’s role involved gaining access to the Big Client's planned trades and relaying this confidential information to Parekh. Salgaocar himself admitted to SEBI that a significant majority (90%) of the Big Client's trades were fulfilled through Parekh's network, suggesting a highly coordinated and systematic approach to exploiting this insider information for profit. The investigation shed light on the methods used to execute the trades. The NPI received by Parekh was then strategically shared with a network of front entities who would execute the trades, obscuring the source and beneficiary of the illegal activity. This layered approach made tracing the illicit activities complex, but SEBI’s investigation successfully unraveled this elaborate scheme.
A crucial breakthrough in the investigation came through the analysis of mobile phone data and communication records. SEBI discovered a cluster of ten mobile phone numbers, registered under various names, found to be consistently located at Parekh's Mumbai residence and traveling with him. These phones were instrumental in facilitating communication between Parekh, Salgaocar (based in Singapore), and the network of front runners. Crucially, the investigation revealed that one particular phone number, “XXX0308243,” linked to Parekh’s Aadhaar card, was also registered under his wife's name. This seemingly innocuous detail became a pivotal piece of evidence, allowing SEBI to trace the location data of this phone number and correlate it with other phones used in the scam. This data, combined with WhatsApp chat details and testimony from key accused individuals, provided SEBI with a comprehensive trail of communication and transactions related to the fraudulent activities.
Further solidifying the case against Parekh, WhatsApp messages provided significant evidence. A message from Sanjay Taparia, one of the accused front-runners, wishing “Jack Latest” a happy birthday on February 15, 2023, proved pivotal. By matching the birthday mentioned in the message with Parekh's date of birth as per his PAN card, SEBI definitively linked “Jack Latest” to Parekh, connecting another crucial component of the network. The investigation's thoroughness is evident in the meticulous examination of trading data, WhatsApp messages, and call records. These various data points, when analyzed together, effectively established the link between Parekh, Salgaocar, and their network of associates, providing irrefutable evidence of their coordinated effort in executing the front-running scam. The successful prosecution of this case underscores the importance of leveraging technological advancements in financial crime investigations.
The outcome of this case carries significant implications for the Indian stock market. The meticulous investigation and successful prosecution send a strong message that such illegal activities will not be tolerated. It serves as a deterrent to others who might be contemplating similar schemes, emphasizing the vigilance and investigative capabilities of SEBI in maintaining the integrity and fairness of the Indian stock market. Furthermore, this case showcases the importance of collaborative efforts between various regulatory bodies and the effective use of technology in combating financial crimes. The ability to leverage communication data, such as WhatsApp messages and mobile phone location tracking, significantly aids in exposing intricate networks involved in sophisticated financial fraud. This success is a testament to the evolving investigative techniques and technologies employed in exposing and punishing those involved in financial crimes.
Source: Front-running scam: How Ketan Parekh's wife's phone number helped SEBI uncover his shadow network