Zerodha warns investors against 'pump and dump' scams1 min read . Updated: 09 Jan 2020, 12:20 PM IST
- Operators pick illiquid stocks which typically don’t trade actively and later send messages to boost the stock price
- As the stock price keeps going up, these operators keep offloading the stocks in large quantities
Zerodha, India's biggest stock broker, has warned investors against investing or trading based on anonymous and fraudulent stock tips. "In the past few years, the scourge of stock tip messages, calls, and websites has become a dangerous nuisance. We’ve been seeing queries from unwitting investors who have invested based on these messages and calls," the stock broker said, referring to schemes that are are commonly known as “pump and dump" scams.
Zerodha also explained how this scam works: Operators pick illiquid stocks which typically don’t trade actively. The tipsters holding these stocks start sending out messages to boost the stock price, with variations of Zerodha such as “ZRODHA", “ZERDHA" etc.
"As the price keeps going up, these operators keep offloading the stocks in large quantities. And these stocks start hitting lower circuits for months together leaving investors trapped," Zerodha said.
Zerodha said it has reported such cases to the relevant authorities including market regulator Sebi and Cyber Cell.
The stock broker urged investors to stay away from these stocks as most of them have "dubious fundamentals at best".
"Please stay away from trading or investing based on stock tips messages and calls. These stocks hit lower circuits right at the market open, in which case it is not possible to exit," it said.
Zerodha also urged investors to report such message to market regulator Sebi or exchanges.
"Enable DND and report the numbers to TRAI. You can download the DND app here for Android and iOS. If enough people report these messages, it’ll make it hard for these guys to keep getting new numbers," Zerodha added.