ETtech Explainer: What’s behind Sebi’s crack down on YouTube influencers for stock market manipulation

Here’s all you need to know about such ‘pump and dump’ schemes.

What is the case about?

The current case pertains to Youtubers uploading misleading videos on their channels and recommending that viewers purchase shares of Sadhna Broadcast Ltd and Sharpline Broadcast Ltd for lucrative returns.

In addition to Warsi and Goretti, Sebi has also barred some of the promoters of Sadhna Broadcast from the securities market for their involvement. Moreover, the regulator has impounded illegal gains to the tune of Rs 54 crore made by the entities, as per two separate interim orders.

Also read | Sebi cracks down on ‘pump & dump’ YouTube schemes

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Sebi said 31 players made unlawful gains of Rs 41.85 crore in Sadhna Broadcast case, while 24 people booked Rs 12.14 crore worth of profits in Sharpline Broadcast.

In the case of Sadhna Broadcast, Sebi said that Warsi made a profit of Rs 29.43 lakh, while his wife made gains of Rs 37.56 lakh. Besides, one Iqbal Hussain Warsi gained Rs 9.34 lakh. Sebi classified these three and others as volume creators.

The actor, however, claimed that he has no knowledge about stocks. Taking to Twitter, Warsi said: “Please do not believe everything you read in the news. Maria and my knowledge about stocks is zero, took advice and invested in Sharda, and like many other, lost all our hard earned money.”

How do ‘pump and dump’ schemes work?
In such cases, manipulators attempt to influence stock price by misleading investors to buy certain shares via social media platforms such as YouTube, Instagram, Telegram, and WhatsApp groups.

The videos are marketed heavily for additional reach and once investors buy enough shares, manipulators offload the inflated shares and book profits. Investors, on the other hand, face huge losses once the shares are dumped.

We reported in November last year that Sebi is working on guidelines to regulate financial influencers on various social media platforms.

In the present case, Sebi received multiple complaints stating that YouTube channels, including Moneywise, The Advisor, MidCap Calls and Profit Yatra, were uploading misleading videos to lure investors.

Following this, the regulator conducted an examination during April-September 2022 and found that spurt in the price and volume of scrip of the two companies between April and mid-July 2022.

Claims made in YouTube videos
Among some of the claims made in those videos were that Sadhna Broadcast Ltd will be taken over by Adani group and after the deal, the margins of the company will increase.

Others claimed that the company is moving from TV production to movie production and a major American corporation has entered into a contract for Rs 1,100 crore to produce four devotional movies. In one of the videos, an image of Gautam Adani was also used.

Sebi said such manipulation tactics led to a drastic increase in the number of small shareholders of Sadhna from 2,167 to 55,343 shareholders, while the number of small shareholders shot up from 517 to 20,009 in the case of Sharpline.

These YouTube videos peddled false and misleading news to recommend that investors should buy shares of Sadhna and Sharpline for extraordinary profits, Sebi said in its two separate interim orders, and barred these 45 entities “from buying, selling or dealing in securities either directly or indirectly, in any manner whatsoever until further orders”.

They have also been directed not to dispose of any assets, whether movable or immovable including money lying in bank accounts except with the prior permission of Sebi until the impounded amount is deposited in the escrow account.

Meanwhile, Nithin Kamath, founder of online stock broking firm Zerodha hailed Sebi’s action in the stock manipulation scheme.

He said these scams had become the easiest game in town for manipulators. “Sebi is killing it with these enforcement orders. Yesterday’s (order) against the pump & dump schemes peddled by selling greed & unrealistic returns through social media & YouTube should serve as a powerful deterrent,” Kamath said.

Kamath said he expects that these “elaborate orders should hopefully put some fear amongst unauthorised tipsters and people offering unauthorized portfolio management services. Such actors damage the sanctity of capital markets in India”.