What is pump-and-dump scheme? SEBI bans actor Arshad Warsi, Maria Goretti, 57 others for alleged market manipulation

The Securities and Exchange Board of India (SEBI) on May 30, Thursday, slapped a ban on Bollywood actor Arshad Warsi, wife Maria Goretti, and 57 others, from the securities market in connection with alleged manipulation of Sadhana Broadcast stock.

The markets watchdog handed out bans to the 59 alleged perpetrators, barring them from the Indian securities markets for 1 to 5 years, along with penalties. Reports state that SEBI uncovered evidence of misleading videos posted on YouTube recommending investors to buy Sadhana Broadcast stock.

SEBI also slapped a fine of ₹5 lakh each on Warsi and Goretti. Fines to the 57 other alleged entities, including Sadhana Broadcast promoters, range from ₹5 lakh to ₹5 crore. Sadhana Broadcast is now known as Crystal Business System Ltd.

What is pump-and-dump? A pump-and-dump scheme is a manipulative move where perpetrators try to boost the price or perceived value of a stock with fake recommendations (here, YouTube videos were used). Once the hype shoots the value of the stock up, they dump their already established position in the stock at the higher share price, leading to massive profits at times.

Pump-and-dump schemes are illegal in almost every securities market worldwide. In India (and most markets), it leads to heavy fines and possible jail time if convicted.

Here, SEBI also directed the entities to return all their unlawful gains, totalling a staggering ₹58.01 crore, along with 12 per cent interest per year from the end of the investigation period until the date of payment.

The markets watchdog also alleged that Arshad Warsi bagged a profit of ₹41.7 lakh and Maria Goretti ₹50.35 lakh from the scheme.

According to the SEBI order, it alleged that the scheme was the brainchild of Gaurav Gupta, Rakesh Kumar Gupta, and Manish Mishra. These individuals planned and executed the manipulative scheme, SEBI alleged.

The 109-page SEBI order alleged that many of the entities acted as "information carriers", assisting in manipulative trades despite not trading in the stock from their own accounts.

According to SEBI, small-volume trade was done to move the stock price up slowly. Then, misleading promotional videos were published across YouTube channels handled by Manish Mishra such as Moneywise, The Advisor, and Profit Yatra, SEBI alleged.

SEBI took cognisance of complaints received from July to September 2022 alleging price manipulation and subsequent offloading of Sadhana Broadcast shares. Complaints also alleged that YouTube videos with false content were being used to lure investors, including promoting it through paid social media outreach.

This led to the market regulator passing an interim order against 31 entities on March 2, 2023, and then launching a detailed investigation into the alleged manipulation of Sadhana Broadcast stock from March 8, 2022 to November 30, 2022. 

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