How are Scamster Ketan Parekh and Reliance Industries Connected?
Yet another scam in the financial world! Grab a tub of popcorn, sit back and read on.
Ketan Parekh, a Chartered Accountant by profession, famous for his K-10 portfolio that comprised of 10 hand-picked stocks, was operating in the markets at the same time as Harshad Mehta (read Harshad’s story here, if you haven’t already).
One of the major stocks Ketan invested in, and manipulated, was Himachal Futuristic Communications Limited (HFCL).
How?
The strategy he deployed is called "Pump & Dump."
This involved buying stocks in bulk (20%-30%) - and “Pumping” up its prices. Looking at the rising prices, many copy cat investors would also start buying the stocks. When the prices were high enough, Ketan Parekh would sell (or “Dump”) his holding.
Just this? Of course not!
He had another trick up his sleeve - something we call "Circular Trading" today.
Similar to "Pump & Dump", Ketan Parekh would hire new traders selectively and order them to buy and sell some specific stocks very frequently.
This would shoot up the volumes of the stock exponentially, making them “hot cakes”. Again, looking at this, many investors who traded on price-action strategy and volumes jumped in to buy the stocks.
Greed took over their common sense.
When the prices were high enough, Ketan Parekh would sell the holdings, pay the amateur traders and take a big profit back home.
But this strategy also needed a huge amount of capital.
If we learnt anything from Harshad Mehta’s scam, it is that banks are the favourite pawns of market manipulators.
Ketan bought a big chunk in Madhavapura Mercantile Commercial Bank (MMCB); big enough to manipulate the bank’s loan decisions. That’s how he got the money to pump up the stocks.
After the scam was revealed, it came to notice that HFCL had also diverted Rs.700 crore.
HFCL was given a show-cause notice in 2004. Later, HFCL went on to settle this by paying Rs.10 crore in 2008. A paltry sum.
By now, you may have guessed the “connect” we are talking about.
No? Let’s see.
The Reliance Connect
Himachal Futuristic Communications Ltd. (HFCL) provides solutions in the telecommunications infrastructure segment. It specializes in building optical fibres and telecommunication equipment. HFCL has rolled out more than 1,00,000 km of optical fibres throughout the nation.
Know any other company looking to enter the telecom sector a few years ago?
The 4G Spectrum auction in 2010 was won by Infotel Broadband Service Pvt. LTD. (IBSPL), a tiny internet services provider.
Not by Bharti Airtel, Idea Cellular or Vodafone, the biggies of that time.
So, how could a small, tiny company, with one client, only Rs 2.50 crores of capital, and Rs. 18 lakhs in its bank take on such biggies?
Well, it was backed by someone very powerful - someone smart enough to know that if they revealed their name, the auction price would shoot up drastically.
IBSPL was owned by Anant Nahata, son of HFCL promoter Mahendra Nahata.
It qualified on the bidder’s list because of a money deposit of Rs. 252 Crore as bank guarantee showed in the company’s bank account (no one knows where that came from!).
The results of the auction were declared on June 11, 2010, after 117 rounds of auction.
On the same day, a shareholders meeting on short notice was called.
In this meeting, IBSPL raised Rs. 6,000 crores by issuing 95% share to Reliance Industries Limited.
Now you see the trick?
Within a few days, RIL announced that it would make a re-entry into the Indian telecom market.
On January 22, 2013, IBSPL was renamed: Reliance Jio Infocomm Limited.
But, the 4G spectrum they bought was supposed to be used only for internet services, not telecom services.
In April 2012, at the request of the Department of Telecom (DoT), the regulatory authority for telecom companies (TRAI) furnished guidelines on changing the licensing framework and replacing it with a new Unified Licence regime, which allowed internet service providers to offer voice (calling) services.
Had Airtel, Idea and Vodafone known they were competing against Ambani, their strategy would have been quite different, no?
Mahendra Nahata has been a Director in Reliance Industries Limited since 2010 (the year of 4G spectrum auction). All of HFCL’s revenue from 4G services comes from one client. Guess who?
Well, looks like you can get away with anything in this country, as long as your name is Ambani.
By: Yash Gandhi and Shantanu Jain
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