What is the Youtube ‘Pump and Dump’ Scam and How to Avoid It? Explained Amid Arshad Warsi Case

The Securities and Exchange Board of India (SEBI) recently barred 31 entities, including actor Arshad Warsi, his wife Maria Goretti, YouTuber Manish Mishra and promoters of Sadhna Broadcast – Shreya Gupta, Gaurav Gupta, Saurabh Gupta, Pooja Aggarwal and Varun Media – from the securities market in a case related to uploading misleading videos on YouTube channels recommending investors to buy the company’s shares, as per a report by Indian Express.

Furthermore, the regulator seized illicit gains made by the entities after the “pump and dump” scam to the tune of Rs 41.85 crore, the report said, requiring all 31 persons to open an escrow account with a scheduled commercial bank and deposit the impounded sum within 15 days.

But what is the pump and dump scam?

The stock market manipulator creates a YouTube or Instagram channel, explains a report by Mint. Massive sums are spent on promotions in order to enhance the channel’s reach. Sadhna Broadcast Ltd and Sharpline Broadcast Ltd each paid Rs.4.72 crore to market stations with names like Moneywise, The Adviser, Midcap Calls, and Profit Maker.

Then, misleading assertions about the stock are made (pump). In the case of Sharpline, for example, claims about the Adani group owning the company were made. The manipulators sell the stock after naive investors buy it (dump).

Whenever the excessive share-price levels are reached, vested interests “dump” the shares by booking profits, leaving average investors naive and liable to losing money invested. Sebi classifies such schemes as fraudulent and abusive commercial activities that threaten the integrity of Indian capital markets.

What Happened in the Arshad Warsi Case?

According to Sebi, Arshad Warsi and a few others “inflated” the share prices of Sadhna Broadcast and Sharpline Broadcast by uploading deceptive videos to YouTube channels. These YouTube videos spread fraudulent and misleading information advising investors to buy Sadhna and Sharpline stock for large returns, says a report by Economic Times.

Following the release of the recordings, Sebi discovered a spike in the price and trading volume of two firms’ shares between April and July of last year.

The high volume indicated that many retail investors were likely inspired by the videos and purchased the shares. Simultaneously, Arshad Warsi, promoter stockholders, and others liquidated their interests at inflated prices and profited. Arshad Warsi made a profit of Rs 29.43 lakh, and his wife made a profit of Rs 37.56 lakh, according to the regulator.

Stay Sharp

There is no shortage of personal finance advice with the advent of financial influencers and the immense reach of social media. But, certain influencers with vested interest, according to experts, pose a harm to an individual’s financial stability, the ET report explains. They warn retail investors to exercise caution before acting on unapproved advice from various sources, notably social media.

With inputs from agencies

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