Pump, hype, & dump: SEBI nails Arshad Warsi, wife in YouTube stock scam - what is the case

The Securities and Exchange Board of India (SEBI) has taken significant action against Bollywood actor Arshad Warsi, his wife Maria Goretti, and 57 other entities involved in a pump-and-dump scheme that manipulated the share price of Sadhna Broadcast.

The ban is a part of a broader directive implemented by Sebi in relation to the manipulation of Sadhna Broadcast Limited's stock price, which has since been rebranded as Crystal Business System Ltd.

This move follows SEBI's direction for these entities to return a total of Rs 58.01 crore in unlawful gains, along with interest at 12 percent per annum from the end of the investigation period until payment is made. The scheme allegedly yielded profits of Rs 41.7 lakh for Warsi and Rs 50.35 lakh for Goretti.

What is a pump-and-dump scheme?

In a pump-and-dump scheme, individuals seek to artificially inflate the price or perceived worth of a stock through deceptive means, such as issuing fraudulent recommendations, as demonstrated in this case by the use of YouTube videos. Once the manipulation drives up the stock value, the perpetrators swiftly sell off their stake in the company at the inflated price, resulting in significant financial gains.

As per the SEBI order, the orchestrators of this scheme were Gaurav Gupta, Rakesh Kumar Gupta, and Manish Mishra. These individuals reportedly masterminded the plan, which involved misleading promotional activities on popular YouTube channels.

SEBI also highlighted that some entities acted as "information carriers," aiding in the scheme without directly trading from their accounts. This complex network of individuals and entities worked together to manipulate the market, showcasing a coordinated effort to deceive investors.

A key component of the scheme involved manipulating the Sadhna Broadcast share price through small-volume trades, followed by the dissemination of misleading YouTube videos that falsely recommended the stock to unsuspecting retail investors.

The videos asserted that the company held a 5G license, was in the process of being acquired by the Adani Group, and had finalised a Rs 1,100 crore agreement with a US-based company.

Channels such as Moneywise, The Advisor, and Profit Yatra were implicated in spreading these deceptive recommendations, allegedly managed by Manish Mishra. These videos played a crucial role in creating a false sense of security among investors, leading them to make uninformed decisions.

The videos were promoted through paid advertisements on YouTube, leading to an influx of retail investors and causing a sharp increase in the stock price. Sebi determined that the artificial price spike was the outcome of a deliberate and coordinated scheme, which included deceptive promotions and structured trading strategies.

Arshad Warsi and Maria Goretti's role

As part of the scheme, Arshad Warsi and Maria Goretti acquired shares of Sadhna Broadcast from other individuals mentioned in the Sebi order. On July 13, 2022, Arshad purchased 1,87,500 shares from Jatin Shah and 14,241 shares from Heli Jatin Shah. Maria also acquired 2,65,004 shares from Jatin Shah and 55,200 shares from Angad Rathod on the same day.

Shortly after, when the stock price surged due to misleading videos, both Arshad and Maria sold their shares. Sebi reported that Maria sold 3,29,755 shares and Arshad sold 3,29,050 shares during this period.

Sebi concluded that the timing of these transactions indicated that Arshad and Maria were part of a cluster of "connected entities" who disposed of shares at inflated prices, capitalizing on the artificial increase triggered by the deceptive promotions.

Ban and fines

SEBI has barred Warsi, his wife, and others from participating in the securities markets for periods ranging from one to five years. This action is part of a broader crackdown on misleading practices in the stock market. The ban comes alongside fines of Rs 5 lakh each for Warsi and Goretti, and penalties ranging from Rs 5 lakh to Rs 5 crore for other involved entities, including the promoters of Sadhna Broadcast, now known as Crystal Business System Ltd.

In addition to the ban and fines, SEBI has mandated that the 59 entities involved return a combined 58.01 crore in gains, along with accrued interest. This directive underscores SEBI's commitment to maintaining integrity and fairness in the securities markets. By enforcing such measures, SEBI aims to deter future misconduct and uphold investors' confidence.

The market regulator responded to complaints received between July and September 2022, which alleged price manipulation and misleading content encouraging the purchase of Sadhna Broadcast shares. The complaints were substantiated with claims that the videos were part of a paid social media campaign to lure investors. This highlights the increasing role of digital platforms in influencing market behavior and the need for vigilance.