What is ‘pump and dump’ in stock market lingo?

Pump and dump is a manipulative scheme to boost the price of stock through fake recommendations based on false, misleading, or exaggerated statements. When the price rises, the operators sell the stock.

How was this used in the SEBI order pointing out a scam on YouTube?

SEBI’s order in the case came after complaints alleged that misleading YouTube videos with false content about the company were uploaded to lure investors. During July 2022, false and misleading videos about Sadhna Broadcast were uploaded on two YouTube channels — The Advisor and Moneywise.

These videos were recommending that investors buy the stocks while the promoters and Bollywood actors, part of the promotional activities, were selling the shares. The SEBI order details the uploading of misleading videos on YouTube channels.

What part did Arshad Warsi and his wife play in this scam?

SEBI said that promoters of Sadhna Broadcast, and Arshad Warsi, along with Manish Mishra, the creator of YouTube channels Moneywise and The Advisor, recommended that investors buy the company shares and when the price went up they dumped it.

In one of the videos, the accused said that Adani Group will take over Sadhna Broadcast and after the acquisition the company’s margins will improve. Another video claimed that the company is moving from TV production to movie production and a big American corporation has entered into a contract for ₹1,100 crore to produce four devotional movies, where the money will be brought in by the American investor but the rights will remain with Sadhna.

SEBI found that the promoters and Bollywood actor Arshad Warsi and his wife were offloading shares of the company while indulging in promotional activities.

In its order, SEBI has classified 31 entities i into categories — creator of YouTube channels (Manish Mishra), net sellers/promoters and profit makers, volume creators and information carriers. Arshad Warsi and his wife come in the category of volume creators.

Are such pump-and-dump operations common in the stock market? Any other instances involving other stocks?

Pump-and-dump operations are illegal. But, due to people’s greed to make quick money and lack of market knowledge, such schemes are flourishing. Such operations are common in small company stocks, which have less volumes. Cals Refinery was one of the prime examples of such an operation, where the promoters and operators created news flow of the company starting a oil refinery in West Bengal.

The share price of the company, which was trading between ₹ 1 ₹2 saw massive buying traction, while SEBI investigations revealed that the operators were selling. Likewise, such operations are common in many penny stocks.

What are the lessons for investors from this episode?

Do proper research before investing and follow the right source for investing. Follow the advice of SEBI registered advisors. If you do not understand the market, then invest via mutual funds.