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BUSINESS: STOCK SCAM
PROMOTER-BANKER-BROKER NEXUS
 The
SEBI found at least 17 broking and investment companies linked directly
or indirectly to Parekh. The two promoters named for funding Parekh in
price manipulation are Zee Telefilms and HFCL. The banks in the broker-promoter-banker
triumvirate were GTB and Madhavpura Mercantile Cooperative Bank (MMCB).
While the involvement of these names was talked about even before SEBI's
investigation started, what's new in the report is the method and exact
detail of manipulation that the triumvirate followed.
For instance, the GTB gave loans of Rs 200 crore
to Zee and Siticable (a Zee group company) on March 8 and 9. The money
was routed through Zee group companies (like Digital Super Highway) to
Classic Credit of Parekh. Interestingly, from the opening of an account
with GTB to the disbursal of the loan and
its routing, every thing was done in one day. Between January
and March 2001, the Zee group alone provided Rs 340 crore to Parekh's
companies. According to SEBI, "Zee group claimed that the funds were
given to Ketan Parekh to acquire share of some of the companies which
include B4U Multimedia, AB Corp, Mascon Global, Mukta Arts, Tips Industries
and Shonk Technologies. Though the funds were transferred to Ketan Parekh's
group companies (by Zee), delivery of these shares was not taken."
The report identified other aspects of these transactions, which indicated
that the transactions were not meant for purchase of shares. Rather the
purpose was "only to provide funds to Ketan Parekh".
Investigators also found fund flow of Rs 425
crore from HFCL group to Parekh companies. About Rs 150 crore were routed
through Digital Super Highway and remaining through a HFCL group company,
Burlington Finance. Like Zee, HFCL also explained to SEBI that Rs 150
crore was given to acquire share of Digital Super Highway, a private limited
company of Zee. But SEBI investigations found that "the fact is that
shares have not been issued and the explanation appears to be an afterthought".
On March 31, 2001, Parekh and his associates
had outstanding advances of Rs 256 crore against GTB and Rs 65 crore against
Bank of Punjab, Centurion Bank and ICICI Bank. Then, of course, there
are the outstanding dues of Rs 798 crore against MMCB. The money from
banks and promoters was used to buy shares
of HFCL, Zee Tele, DSQ Software and Global Tele. The investigations have
established that the period when Parekh's companies were buying these
stocks was the "period funds flowed to them from the promoters of
these stocks and the banks".
Parekh continued to prop up these stocks even
when the technology stocks had begun to slide. Observes SEBI: "When
market trend has been on the decline, not only internationally but domestically
as well, his (Parekh's) companies have been increasing their exposure
in scrips like HFCL, Global Tele, Zee Tele and DSQ software." The
conclusion is inescapable: "Receiving such huge funds for carrying
out such large stock market activities points towards a close nexus between
promoter group companies and brokers in manipulative activities."
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