SEBI imposes 5-year ban on actor Arshad Warsi and 58 others for involvement in ‘pump and dump’ scam

The Securities and Exchange Board of India (SEBI) recently made a significant move by banning actor Arshad Warsi and 58 others for five years due to their involvement in a deceptive market manipulation scheme that used false narratives on digital media to mislead investors. This case, which involved the deliberate inflation of the share price of Sadhna Broadcast Limited, was a clear example of a ‘pump and dump’ operation orchestrated through misleading YouTube videos and coordinated trading strategies.

SEBI, in its decision, stressed the importance of maintaining the integrity of the securities market and emphasized that any attempts to deceive investors, regardless of the method used, would not be tolerated and would be met with strict legal action. This case underlines the regulator’s commitment to cracking down on deceptive practices in the market, particularly those that exploit digital platforms to manipulate stock prices and mislead investors.

The investigation into this fraudulent scheme began when complaints and media reports drew attention to the suspicious spike in the price and volume of Sadhna Broadcast Limited’s shares. It was discovered that between April 2022 and July 2022, the price of SBL shares rose significantly from ₹2.50 to ₹13.05 per share, a jump that was not supported by the company’s financials or any legitimate market developments. Further probing by SEBI revealed a two-pronged approach to manipulating the stock price: first, by artificially inflating the price and volume through coordinated trading, and second, by disseminating misleading videos on YouTube channels like ‘The Advisor’ and ‘Moneywise’ that lured retail investors with false promises of high returns.

Arshad Warsi, one of the key figures in this scheme, was found to be actively involved in trading shares on behalf of himself, his wife, and his brother under the instructions of Manish Mishra, who was orchestrating the manipulation. WhatsApp messages and trading patterns exposed Warsi’s complicity in executing trades as directed by Mishra, despite his claims of ignorance and victimization. The evidence presented indicated Warsi’s direct role in facilitating the artificial increase in trading volumes as part of the pump-and-dump operation, which ultimately harmed investor interests and market integrity.

SEBI’s adjudicating authority conducted a thorough analysis of the events leading to the abnormal surge in SBL’s share price and volume. It was revealed that a network of connected entities engaged in synchronized trading to inflate demand artificially and create a false impression of investor interest, leading to a substantial increase in the stock price without any corresponding fundamentals to justify it. The investigation also found that the dissemination of false information through YouTube videos further exacerbated the situation by falsely portraying SBL’s prospects and enticing unsuspecting retail investors to buy shares at inflated prices.

Overall, this case serves as a stark reminder of the need for vigilance in the securities market and the importance of regulatory oversight to prevent deceptive practices that can harm investors and undermine market integrity. SEBI’s actions reinforce the message that market manipulation, in any form, will not be tolerated and will be met with strict consequences to protect investor interests and maintain the integrity of the market.