Arshad Warsi, wife Maria Goretti and others barred by SEBI from market on unearthing ‘pump and dump’ scheme

Arshad Warsi, wife Maria Goretti and others barred by SEBI from market on unearthing ‘pump and dump’ scheme

Accused of contributing to a rise in trading volumes and interest in the scrip through YouTube channels

The Securities and Exchange Board of India (SEBI) has passed an interim order barring Bollywood actor Arshad Warsi, his wife Maria Goretti, and 29 others from indefinitely accessing the securities market.

Warsi and other noticees were penalized for running a 'pump and dump' scheme that involved manipulating the price of a stock through misleading information. This was to lure investors into buying it and selling the shares at an inflated price immediately.

The information on price manipulation and offloading of shares was received by SEBI from certain entities in the scrip of a company Sadhna Broadcast Limited (SBL).

It was alleged that YouTube videos with false content, backed by a paid marketing campaign worth crores of rupees, were being uploaded to lure people to invest in the company. Once the investors entered the scrip, the said entities offloaded their holdings at an inflated price.

This was alleged to be in violation of the SEBI Act and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003.

During the second half of July 2022, false and misleading videos about the company were uploaded on two YouTube channels Midcap Calls and Profit Yatra, run by Manish Mishra.

The videos peddled false and misleading news to recommend that investors should buy the Sadhna stock for extraordinary profits.

The false claims made in the videos included, “The company has a 5G license. And SBL is going to be taken over by Adani Group. The margins of the company will increase after the deal.”

Classified as a misleading message disseminator (MMD) 1, Mishra allegedly paid Rs.4,72,24,967 to Google AdSense for promoting the videos uploaded on YouTube.

The order stated, "The four videos have a combined view count of 3,02,05,655. Thus, there was a prima facie deliberate attempt to widely disseminate the content of the videos.”

Along with Mishra, another MMD, Manjari Tiwari was known to have sold their shares in Sadhna between July and September 2022, contrary to the recommendations in the YouTube channels. This meant taking advantage of the increase in price caused by the unsuspecting retail investors entering the scrip of Sadhna to book profit at inflated prices.

The whole-time member of SEBI ordered, "This prima facie leads to the conclusion that the videos uploaded on YouTube were intended to mislead and induce retail investors to deal in the scrip of Sadhna Broadcast Limited.”

In the matter, Warsi and Goretti were classified as volume creators (VCs), who bought and sold shares of Sadhna during the examination period. They contributed to a rise in trading volumes and interest in the scrip.

The order further read, "It is pertinent to note that many volume creators were closely linked with the MMD & VC. Further, the sale of shares by many of the net sellers had matched with the buy orders of the VC.”

Thus, Warsi and Goretti had made profits of Rs.29,43,649 and Rs.37,56,816, respectively, from the buying and selling of shares.

The preliminary examination by SEBI revealed, "The entire modus operandi read together with the connection between the noticees, which includes the promoters and directors of the company, leads to the prima facie conclusion that they were engaged in a coordinated scheme to induce unsuspecting investors to acquire securities in Sadhna leading to an unnatural increase in the prices of the scrip and finally sold shares at inflated prices thereby making illegal gains at the cost of the new investors.

It further noted, “This coordinated scheme is, prima facie, a violation of Section 12A(a), (b) and (c) of the SEBI Act read with Regulation 3(a), (b), (c), (d) and Regulation 4(1) and 4(2)(a), (d), (k) and (r) of the PFUTP Regulations."

Pending a full and final investigation by the markets regulator, the noticees were restrained from buying, selling or dealing in securities either directly or indirectly, until further orders. The proceeds in the bank accounts of the notices regarding the extent of their liability would be impounded.