Explained: What is the ‘Pump-and-Dump’ Scheme? Bollywood Actor Arshad Warsi…

ment fades, the stock price crashes back down, and the new investors who bought at the high price end up losing a lot of money. The scheme involves artificially inflating the value of a stock through deceptive means and then profiting from selling off the overvalued shares to unsuspecting investors.

In the case of Arshad Warsi and his wife Maria Goretti, SEBI’s investigation uncovered that they, along with several others, participated in this pump-and-dump scheme involving Sadhna Broadcast Limited shares. The scheme operated by creating a false sense of demand for the stock through misleading promotional videos and manipulative trading practices. This inflated the stock price, luring in unsuspecting investors who ultimately suffered financial losses when the stock price plummeted after the fraudulent scheme was executed.

The scheme involves manipulating the stock market by artificially inflating the price of low-value stocks through spreading misinformation and creating a false sense of urgency and demand. This fraudulent activity causes unsuspecting investors to purchase the overvalued shares, often resulting in significant financial losses when the stock price inevitably crashes after the schemers sell off their inflated shares for profits.

The scheme typically begins with a group of individuals secretly accumulating a large number of shares of a low-value stock. They then use various channels, such as social media, promotional videos, or other mediums, to spread misinformation about the potential skyrocketing value of the stock, attracting buyers who are unaware of the manipulation at play. As more buyers flock to purchase the artificially inflated shares, the stock price rises significantly.

Once the stock price reaches its peak due to the false hype created by the schemers, they swiftly sell off their shares at the inflated price, making substantial profits in the process. The sudden flood of sell orders triggers a rapid decline in the stock price, leaving the unsuspecting investors who bought at the inflated price with significant financial losses. This deceptive practice is a clear violation of securities regulations and undermines the integrity and fairness of the stock market.

SEBI’s decision to ban Arshad Warsi and Maria Goretti, along with other individuals and entities involved in the pump-and-dump scheme, serves as a warning against engaging in fraudulent and manipulative trading practices. The regulator’s actions aim to protect investors and maintain the integrity of the securities market by penalizing those who seek to profit unjustly at the expense of unsuspecting participants. The investigation identified key individuals who orchestrated the scheme and engaged in fraudulent trading practices to artificially inflate the shares’ value for personal gain, ultimately causing harm to innocent investors. SEBI’s vigilance and enforcement actions against such deceptive schemes are essential to ensure a fair and transparent trading environment for all market participants.