Ketan Parekh Case: Sebi sends show cause notice to 6 Capital Group FPIs

Mumbai: The Securities and Exchange Board of India (Sebi) has issued a show cause notice to six foreign portfolio investors (FPIs) run by US-based asset manager Capital Group, alleging lapses in maintaining confidentiality of trade-related information that enabled an extensive front-running network involving market operator Ketan Parekh and Singapore-based trader Rohit Salgaocar.

This is the first time Capital Group has been identified in a Sebi notice in the front-running episode, having previously been described only as a "big client." It manages over $3.3 trillion in assets globally, making it one of the largest in the space.

A Capital spokesperson declined to comment. Sebi didn't respond to queries. The regulator has initiated legal proceedings against Smallcap World Fund, American Funds Insurance Series Growth-Income Fund, American Funds Fundamental Investors, The Growth Fund of America, AMCAP Fund and Capital Group AMCAP Fund (Lux), as per the 17-page, February 2 notice reviewed by ET.

Details Systematically Shared: Sebi
The notice hasn't been reported previously.

Sebi's investigation covers the period from January 1, 2021, to June 20, 2023, during which it detected the leaking of non-public, sensitive information related to impending, large trading orders of Capital Group to certain individuals, who, in turn, used this to front-run the market and generate illicit gains, according to the notice. Two Capital traders - James Vincent Cheng and Terence Tsai, who handled about 90% of the firm's India-related trading activity - are said to have shared information regarding impending trades with Salgaocar.

Sebi's investigation revealed that prior to the placement of large buy or sell orders in the secondary market on behalf of Capital Group, the details of these impending trades-including the specific scrip name, price and exact quantity-were systematically shared by traders of Capital Group with Salgaocar, who is director of Strait Crossing Pte Ltd, an unregistered entity in India.

Sebi had banned Salgaocar in January 2025 over the front-running matter, in which he and Parekh were said to be involved. Parekh is alleged to have orchestrated stock market manipulation along with bank fraud using a 'pump and dump' strategy that led to the 2001 stock crash.

"Rohit Salgaocar connived with Ketan Parekh and communicated to him the non-public information with respect to the large order of the six FPls under Capital Group," Sebi said in the show cause notice. "Ketan Parekh used the information provided by Rohit Salgaocar to take positions in the scrips prior to the orders of the Capital Group, using various trading accounts."

The regulator said it sifted through various communications to arrive at its findings. The regulator said its probe further revealed - through analysis of Bloomberg chat logs and WhatsApp communications - that Salgaocar subsequently relayed this sensitive, non-public trade data to Parekh and his associated network of information-based front-runners.

This enabled the front-running network to take advantageous positions in the market prior to the execution of Capital Group's orders.

Main Charges
Sebi's primary allegation against Capital Group is that it failed to maintain absolute confidentiality regarding trading intentions and parameters, allowing internal trade secrets to be leaked to unauthorised third parties. It alleged that Cheng and Tsai had established an informal pipeline with Salgaocar, and information was exchanged under the pretext of "sourcing liquidity" or identifying potential institutional counterparties to match Capital Group's large block trades.