The Securities and Exchange Board of India (SEBI) has banned more than 40 entities from participating in the stock market over allegations of price manipulation. Reports suggest that these entities were involved with YouTube channels that deliberately provided incorrect market information to artificially inflate certain share prices.
SEBI also implicated Bollywood actor Arshad Warsi and his wife in the scam, commonly known as “pump-and-dump”. Many of these schemes go unreported but cause millions of dollars in losses in their wake. The case at hand has become even more controversial because it involved high-profile figures.
How Does Pump-and-Dump Scam Work?
It is a type of investment fraud that involves inflating the stock price of a thinly-traded company with low market capitalization through false or misleading statements or promotional activities.
The “pump” phase begins with the scammers buying a large number of shares in the target company at a low price. They then use various means to create false hype around the stock, such as lying about the company’s financial prospects or business developments, and through aggressive advertising and promotional campaigns. This hype incites investors to buy into the stock, driving up its price.
Once the stock price has risen to a certain level, the scammers move on to the “dump” phase. They sell off their shares in the company, realizing significant profits. The sudden selling pressure causes the stock price to fall, leaving unsuspecting investors with worthless shares.
The Role of Celebrities in Influencing Investors
SEBI alleged that its investigation found 4 YouTube channels, including The Advisor and Moneywise, owned by influencer Manish Mishra, had used celebrities to recommend stocks of two companies, Sharpline Broadcast and Sadhna Broadcast, to retail investors. 2 other channels named by SEBI are MidCap Calls and Profit Yatra.
These channels had hundreds and thousands of subscribers with millions of views on videos, aided by paid marketing campaigns. The videos created false hype around Sharpline and Sadhna, encouraging investors to buy their shares. It helped several others to sell their own shares in these companies when the price went up.
SEBI accused Arshad Warsi and his spouse of participating in the same scam aimed at manipulating the stock prices of Sadhna Broadcast. The regulator disclosed that this company was established in 1994 and is headquartered in New Delhi. It was enlisted on the Bombay Stock Exchange (BSE) on January 18, 2018.
Arshad Warsi Deny Allegations
SEBI reportedly impounded 540 million INR (6.5 million USD) worth of illegal gains made by parties involved in the scam. The regulator also alleged that the actor made a profit of 2.9 million INR (35,412 USD) and his wife made 3.7 million INR (45,181 USD).
However, Warsi denied allegations against him and tried to explain himself in a series of tweets. He claimed that he and his wife did not have any knowledge about the stock market. Adding that, they lost all their “hard-earned money” by taking someone’s advice to invest in Sadhna Broadcast.
The case highlights the potential dangers of investing based on advice from YouTube or social media influencers. It also shows that investors must conduct thorough research and due diligence before making any investment decisions in the stock market. There is also a need to emphasize the importance of regulatory oversight to prevent such fraudulent practices and protect investors.
SEBI has been enhancing its guidelines to govern financial influencers on different social media platforms. It had received multiple complaints regarding these 4 YouTube channels that they were uploading misleading videos to fool investors. The regulator began investigating the case and during the period between April and July 2022, it found the sudden surge in the price and trading volume of Sharpline and Sadhna following the YouTube videos.