Pump and dump: SEBI cracks down on Arshad Warsi, others after it finds stock manipulation via YouTube

Securities and Exchange Board of India (SEBI) on Thursday came down heavy on YouTube channels creators, traders, market analysts and influencers for “misleading videos and paid marketing campaigns”, leading to stock manipulation.

In two separate orders passed on Thursday, the regulator barred over 50 entities (Noticees) from securities market for engaging in share “pump and dump” or stock manipulation for listed entities Sharpline Broadcast and Sadhna Broadcast. 

Bollywood actor Arshad Warsi and his wife Maria Goretti Warsi have also been penalised in relation to the case, where a nexus of 31 players, are accused of making illegal gains worth Rs 41.85 crore in Sadhna Broadcast case while Rs 12.14 crore were alleged gained in Sharpline Broadcast. 

These entities include creators of the YouTube Channels (Moneywise, The Advisor, MidCap Calls and Profit Yatra) classified as a Misleading Message Disseminators (MMD), and Net Sellers (NS) and profit makers i.e., persons who held shares of the entities at the start of the examination period, and who traded in and net sold shares during the said period.

Other Noticees are Volume Creators (VCs), persons other than those classified as NSs, who both bought and sold shares of the said companies during the examination period, hence contributing to a rise in trading volumes and interest in the scrip. 

"Prima facie, across the MMDs, NSs and VCs, the Noticees have collectively helped create trading volumes and interest in the scrip, spread false and misleading YouTube videos, and hence induced unsuspecting investors to buy the Sharpline scrip at elevated prices, thereby prima facie violating the provisions of the SEBI Act and PFUTP Regulations. Collectively, the NSs and some of the VCs have booked extraordinary profits as a result of this scheme," the order read.

The entities have been barred from further accessing the markets and advised to deposit the illegal gains booked during the period into an escrow account established for the purpose.

SEBI had received certain complaints wherein it was alleged that there was price manipulation and offloading of shares by certain entities in the scrip of the said companies.  

The complaints alleged that YouTube videos with false content, backed by paid marketing campaign worth crores of rupees for additional reach, were being uploaded to lure investors. Once these unsuspecting investors entered the scrip, the said entities offloaded their holding at an inflated price, the process informally known as “pump and dump”.

“These channels had lakhs of subscribers and the misleading videos had crores of viewership aided by promotion through paid advertising campaigns. Subsequently, the misleading YouTube videos ceased to be available for public viewing,” the order read. 

Subsequent to the release of these videos, there was an increase in the price and trading volume of the companies.

“Noticees have collectively helped create trading volumes and interest in the scrip, spread false and misleading YouTube videos, and hence induced unsuspecting investors to buy the Sharpline scrip at elevated prices, thereby prima facie violating the provisions of the SEBI Act and PFUTP Regulations. Collectively, the NSs and some of the VCs have booked extraordinary profits as a result of this scheme,” it order said. 

The order comes in the wake of tightened scrutiny around financial influencers, popularly known as “finfluencers” that allegedly entrap retail investors by serving misleading information.

The regulator recently announced that it is working on a set of guidelines for financial influencers to ensure transparency and accuracy in conversations.

(This is a developing story. More details to follow)