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Business News/ Markets / Pump and dump? Why did SEBI bar Arshad Warsi, wife and others from stock markets?

Pump and dump? Why did SEBI bar Arshad Warsi, wife and others from stock markets?

After receiving a number of investors’ complaints, capital markets regulator completed an investigation that found several parties including this Bollywood actor guilty of price manipulation and offloading shares

Two you tube channels were used to peddle lies about the stocks of two companies: Sadhna Broadcast and Sharpline Broadcast Premium
Two you tube channels were used to peddle lies about the stocks of two companies: Sadhna Broadcast and Sharpline Broadcast

In a couple of interim orders released by the capital markets regulator Securities Exchange Board of India (SEBI) after an investigation lasting for a number of months, actor Arshad Warsi and his wife Maria Goretti were banned from trading in the markets.

In fact, they were not the only ones who were banned. There are a total of 31 entities involved in this price manipulation and offloading of shares, a planned scheme of events commonly referred to as pump and dump in the markets’ parlance.

What is pump and dump?

It is a kind of securities’ fraud that includes artificially inflating the price of stock by spreading incorrect information with an intent to sell them later once the stock price spikes on account of investors’ euphoria.

Series of events leading to crackdown

In the second half of July 2022, two You Tube channels The Advisor and Moneywise started spreading misleading information about two securities in a bid to lure investors into investing them, the Press Trust of India has reported.

These stocks were Sadhna Broadcast and Sharpline Broadcast. The misinformation was quite bold and over the top. For example, the videos claimed that the company would soon be acquired by Adani Group.

Second, the videos also claimed that the company would move from TV production to the film production and a US production house would infuse Rs 1,100 crore for the same.

Because of these fake video stories peddled via You Tube videos, hordes of retail investors took a plunge and invested indiscriminately into these stocks, leading to a spurt in the prices.

It is worth noting that the stock price was raised artificially, and in no way reflected the stock’s intrinsic value. To get an idea of the massive interest it evoked, one can look at this data:

The number of small investors rose from 2,167 to 55,343 in one stock and from 517 to 20,009 as a result of this manipulation, reported Reuters. The stocks became highly liquid and started to trade at far high prices than earlier.

But when the vested parties —spearheading this manipulative chain of events — eventually off-loaded their stocks at inflated prices in order to earn gains, the stock prices went into a tailspin.

At this stage, some of the investors got suspicious and as one would expect, they knocked on the doors of capital markets regulator i.e., SEBI.

The investigation

The regulator completed its investigation and released two interim orders, found 31 entities guilty of price manipulation and barred them from “buying, selling or dealing in securities either directly or indirectly, in any manner whatsoever until further orders."

The regulator stated that these entities violated the provisions of PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) rules by creating interest in the scrip and spreading false videos.

But it is incorrect to say all these parties colluded and worked for a united goal. Some were there to make the money; some were simply ‘information carriers’, while others facilitated in creating volumes.

In the wake of this, the regulator divided offenders into four categories: creators of You Tube channels (Manish Mishra), net sellers or promoters and profit makers, volume creators and information carriers, reported Press Trust of India.

Arshad Warsi and his wife come in the category of Volume Creators.

The actor, via a tweet, has defended himself by saying that his knowledge of stocks is zero and he himself lost his hard-earned money like other investors.

Mistakes made by traders
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Mistakes made by traders

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Published: 04 Mar 2023, 10:15 AM IST
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