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Pump & dump: How SEBI caught Arshad Warsi & others ‘manipulating’ stock prices in ‘finfluencer’ scheme

SEBI has said a nexus operated to pump up share prices of two broadcast companies via ‘misleading’ YouTube videos. Shares were then offloaded for profits at expense of investors.

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New Delhi: The Securities and Exchange Board of India (SEBI) has banned several individuals and entities, including actor Arshad Warsi and his wife Maria Goretti, from trading in the securities market owing to their alleged involvement in manipulative stock trading practices.

The ban came after SEBI allegedly found that a nexus of investors had purportedly promoted “misleading” videos on YouTube about two Delhi-based broadcasting companies — Sadhna Broadcast Ltd, known for its devotional content, and Sharpline Broadcast Ltd. The false information was intended to manipulate the prices of stocks and resulted in financial gains for those involved, according to findings outlined by SEBI in two detailed reports Thursday.

The operation in question was a type of financial fraud widely known as a pump-and-dump scheme. It involves ‘pumping’ or artificially inflating the price of a stock by making exaggerated or misleading statements to attract investors, in this case via YouTube finfluencer (financial influencer) channels.

After the boost in the prices comes the ‘dumping’ phase, in which those behind the scheme sell their shares at a higher rate, causing the stock prices to drop, leaving the investors with losses.

This is what happened with the stock prices of Sharpline and Sadhna too, alleged SEBI, which started a probe last year after receiving complaints about “price manipulation”.

The schemes for the two companies were purportedly carried out via two different YouTube channels each, all four with lakhs of subscribers. All shared a modus operandi of making hyped-up promises of profits to would-be investors, paid marketing campaigns, and even making tall claims that the Adani Group would be taking over the media companies.

Overall, both the pump-and-dump schemes made combined profits of well over Rs 50 crore, according to SEBI.

On Thursday, Warsi took to Twitter to deny the allegations against him, claiming he and his wife were victims of the alleged fraud. The actor said he had invested in the company after being advised to do so.

According to the SEBI reports, however, Warsi and Goretti acted as “volume creators”, who both bought and sold shares of Sadhna during the period being examined. The reports alleged that of total profits worth Rs 41.85 crore reaped through the Sadhna stock price manipulations, Warsi and his wife gained Rs 29.43 lakh and 37.56 lakh respectively.

Here is a look at how the scheme worked, based on SEBI’s investigation reports.


Also read: How a ‘jadugar’ at Axis Mutual Fund used WFH & social distancing to ‘swindle Rs 30.56 crore’


The pumping phase

The SEBI reports named four YouTube channels. Of these, Midcap Calls (4.29 lakh subscribers) and Profit Yatra (3.35 lakh subscribers) allegedly tried to influence people to buy Sharpline’s scrips, while MoneyWise Stocks (7.67 lakh subscribers) and TheAdvisor (8.2 lakh subscribers) purportedly promoted Sadhna’s shares.

These operators allegedly employed the same tactic — claiming that the company in question was going to be taken over by the Adani Group, which would bump up their margins.

It was further claimed that Sharpline had bagged contracts with Zee and Sony Pictures, while Sadhna was in for a Rs 1,100 windfall for a project to make four devotional films. Would-be investors were purportedly given the impression that they’d get a stake in the profits by buying shares.

SEBI observed that the videos that recommended buying the scrips of both Sadhna and Sharpline were not available for public viewing and that comments were disabled on videos, ostensibly to prevent any ‘warnings’ from being shared.

The administration of all four channels was allegedly linked to a person identified as Manish Mishra and his purported associates in the SEBI reports.

Collectively, the videos posted by these channels fetched at least five crore views. Some ‘investment’ apparently went into this too — the perpetrators reportedly paid Google Ads to promote these videos, shelling out a total of Rs 4.72 crore on such marketing efforts.

How the ‘dumping’ happened

Following the release of the “misleading” content on YouTube, SEBI noted an “increase in the price and trading volume” of the scrips of both companies, indicating that a large number of retail investors had likely been influenced.

Soon thereafter, certain promoter shareholders, key management personnel, and non-promoter shareholders who held more than one per cent shareholding in Sadhna offloaded a significant portion of their holdings at “inflated prices and booked profits”, SEBI said.

In the case of Sharpline, the SEBI report mentioned that certain non-promoter shareholders who held more than 1 per cent shareholding offloaded their “entire holdings” at inflated prices.

For a more detailed overview, SEBI’s investigation of the scheme was divided into various “patches” or phases in which the alleged fraud was conducted. The regulator studied the case of Sharpline in three patches and in two for Sadhna.

The stock prices for Sharpline closed at Rs. 9.35 per share on 7 April 2022, before the suspicious activity began. In the first patch of SEBI’s examination period (12 April to 19 May), both the prices and quantum of stock traded rose.

In the second phase, the YouTube videos were pushed and it was reported that as general investors started getting influenced, the perpetrators offloaded their holdings (or sold their share) at a much higher price.

The closing price on 14 June was Rs 50.65, with more than 30 lakh volumes traded. This means that if someone had invested Rs. 1 lakh on 7 April, its value would have jumped to around Rs. 5.41 lakh within just two months, or a 441 per cent increase, by 14 June.

Between 15 June and 19 August, the prices of these stocks plummeted and reached Rs 13.8, which means that people who were influenced to buy the stock ended up losing a lot of money.

There were similar trends observed in the stock prices of Sadhna Broadcast Limited.

The said perpetrators made a profit of Rs 12 crore in the case of Sharpline Broadcast and Rs 41.85 crore in Sadhna’s pump-and-dump scheme, according to SEBI.

Gaining money through such means is illegal, according to the SEBI Act and invites punishments.

The regulator has barred all the named parties from buying, selling, or dealing in securities, whether directly or indirectly until further notice.

The SEBI order further dictates: “The liability for the illegal gain made by each noticee (named person/entity)… shall be borne by them individually. Accordingly, the proceeds in the bank accounts of noticees, to the extent of their liability shall be impounded”.

The regulator has also directed the “noticees” to open an escrow account in a scheduled commercial bank and deposit the impounded amount within 15 days.

The finfluencer trap

During the Covid-19 pandemic an increasing number of Indians developed a taste for investing in the stock market. This, however, was not necessarily matched by great improvements in financial literacy.

Given this gap, several so-called financial influencers on YouTube, Facebook, and even Telegram garnered large numbers of followers. Not all finfluencers, though, might be equally ethical or offer the best advice.

Last year, it was reported that SEBI was working to prepare guidelines for those who are offering financial advice on social media platforms. SEBI also directed mutual fund companies to tighten the noose of dubious telegram channels. Some of these private “subscribers only” windows push retail investors to buy stocks that are mostly small in size and influence their prices.

Depository participants (the agency where one chooses to invest) have also started cautioning people against advice given on social media platforms.

In the wake of SEBI’s orders, Nitin Kamath, founder and CEO of the depository participant Zerodha celebrated the regulator’s actions via a Twitter post Thursday. He said hoped it would act as a “powerful deterrent” to those peddling pump-and-dump schemes through promises of unrealistic returns via social media and YouTube.

In another tweet in the same thread, he said that the SEBI’s “elaborate orders should hopefully put some fear amongst unauthorized tipsters and people offering unauthorised portfolio management services. Such actors damage the sanctity of capital markets in India.”

(Edited by Asavari Singh)


Also read: ‘Regulator’s remit’ — SC setting wrong precedent with Adani panel, say SEBI ex-chiefs, economists


 

 

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