Pump and Dump Scheme Ft Arshad Warsi

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Oopsieee, it appears that our "Circuit", Arshad Warsi is involved in a new plan, but this time it's not with his cherished Munna Bhai. No, no, it's his very beloved wife this time! What specifically did they do, that investors are saying "Bhai ye toh shuru hote hi khatam ho gya"? Was it a pump and dump scheme? If yes, then how does the scheme work? What is it? Why do experienced investors succumb to these ploys? The most crucial question is how to avoid them. That's just what's in store for us today, then. Let's get going.


What is a pump and Dump Scheme?

A manipulative tactic known as "pump and dump" entails utilising false information to try to drive up the price of a share. The claims are untrue, deceptive, inflated, and circulated for selfish reasons. This is frequently carried out by someone with considerable financial influence.

The pump-and-dump strategy involves three steps. A group of investors begins by purchasing a sizable amount of any stock. In order to get customers to "pump" their funds into the business and acquire more, they then make inflated promises about it. And finally, as the price of the stock rises, they "dump" it and keep the profit. Yet, as the large number of stock is sold, its price declines and other investors suffer losses.

How Arshad Warsi Used Pump and Dump Scheme

According to SEBI, Arshad Warsi, Manish Mishra, and the creators of the YouTube channels Moneywise and The Advisor all advised investors to purchase the company's shares, and when the price increased, they sold them. In addition to engaging in promotional activities, SEBI discovered that the promoters and Bollywood actor Arshad Warsi and his wife were also selling off business shares.

 SEBI discovered a nexus in the case of the two micro-capital companies Sadhna Broadcast and Sharpline Broadcast which are in the business of establishing television channels for news, music, and other programmes, as well as continuing to operate a global network of television news, music, and feature agencies that they involved tricking unsuspecting retail investors into purchasing these scrips by circulating false information, like an anticipated purchase by Adani Group. Fake information contained in videos provided violators with a way out, resulting in illegal gains of Rs 42 crore in the case of Sadhna Broadcast and Rs 12.14 crore in the case of Sharpline Broadcast.

The share's opening price was Rs 2.1 on January 3, 2022, and on April 26, 2022, it grew by 31% to close at Rs 2.76. During this time, a 5% price band was in effect. The scrip struck either the top or lower limit of this price range on the majority of days that Sadhna shares were traded. But from the closing price of Rs 2.76 on April 27, 2022 to the closing price of Rs 12.68 on July 14, 2022, the price of the scrip climbed by 360% between April 2022 and September 2022.

(Source:Finology Insider)

31 companies were divided into four groups by SEBI in its order: information carriers, net sellers/promoters and profit-makers, creators of large volumes of data, and Manish Mishra, a YouTube channel creator. As volume creators, Arshad Warsi and his wife fit this description.

How to tackle Pump and Dump Scheme

  1. Considering the source of the stock price increase's hype.
  2. Do your thorough research and investigation.
  3. Watch out for warning signs.
  4. Use your common sense and ask yourself whether the claims make sense.
  5. The inside hot tips should be avoided.

Conclusion

Usually micro and small cap companies are targets of pump and dump schemes because their stocks are easier to manipulate. Only a small level of buying is sufficient to push the stock prices upwards.Hence, It is crucial for investors to conduct sufficient research of market trends before making any decisions that can significantly influence the health of their portfolio. Blindly following celebrities and promoters would be bad for the financial prospects of investors.In order to protect people's hard-earned money, the regulators must be one step ahead of the con artists in this game. Hence, SEBI’s decision to bar entities engaging in manipulative practices is in the right direction and will ensure a higher level of fairness and transparency.

References

  1. https://www.bankrate.com/investing/pump-and-dump-scheme/
  2. https://www.thehindubusinessline.com/opinion/how-pump-and-dump-was-used-in-the-youtube-scam-by-arshad-warsi-co/article66576445.ece
  3. https://www.business-standard.com/article/markets/sebi-names-actor-arshad-warsi-wife-maria-goretti-in-pump-and-dump-ops-123030201240_1.html
  4. https://www.business-standard.com/topic/arshad-warsi






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