Stock manipulation via YouTube: Sebi bars Arshad Warsi, wife & 31 entities

YouTube channel operators published videos disseminating false information, claims, and target prices

The Securities and Exchange Board of India (Sebi) on Thursday barred several entities, including actor Arshad Warsi and his wife Maria Goretti, for their alleged role in a ‘pump-and-dump’ scheme devised through YouTube channels.

In two separate interim orders in the matter of two micro-cap firms Sadhna Broadcast and Sharpline Broadcast, Sebi uncovered a nexus which entailed manipulating gullible retail investors into buying these scrips by spreading fictitious information, such as an impending acquisition by Adani Group.

False information on videos created an opportunity for violators to exit, making unlawful gains to the tune of Rs 42 crore in Sadhna Broadcast and Rs 12.14 crore in Sharpline Broadcast.

Most of the alleged violators in both cases were common.

Sadhna has a market capitalisation of Rs 55 crore, while Sharpline is valued at less than Rs 8 crore — making these stocks more susceptible to price manipulation.

The market watchdog has termed these individuals as misleading message disseminators, volume creators, and net-sellers.

The list of 31 entities named in the matter includes directors of the registrar and transfer agent for Sadhna and a dealer of a stockbroker. 

“The financial impact that the fraudulent activity has had on small investors is undoubtedly a matter of grave concern,” Sebi noted in its order.

The modus operandi involved buying the thinly-traded stocks of these two companies before publishing videos on the platform disseminating false information on possible deals, financials, growth prospects, and expansions. These trades created an unnatural rise in prices.

Once these unsuspecting investors entered the scrip, the entities allegedly offloaded their holding at an inflated price. Trades by the connected entities led to a volume creation of about 28 per cent of the total volume.

These videos were uploaded on channels The Advisor, Moneywise, MidcapCalls, and ProfitYatra operated by a certain Manish Mishra. As of February 20, some of these channels continued to operate, said Sebi.

While Mishra was recommending a ‘buy’ of the scrip on his YouTube channels, he liquidated his shares and allegedly made profits. 

These videos, with millions of views, triggered buying from retail investors as seen in the public shareholding pattern which surged over 25x.

The capital markets regulator has noted that the creators had deliberately switched off comments on the videos to avoid negative feedback from viewers and engaged in heavy promotion through Google AdSense for the videos to reach a wider audience. 

Although the videos were deleted by the channel operators, Sebi requested the videos and details of the creators like mobile numbers, email addresses, and view count from Google, YouTube’s parent.

An analysis of these call data records and transaction details helped find a connection between the 31 entities named in the manipulation of scrips of Sadhna Broadcast.

Taking harsh note of such instances, Sebi said, “Persons who engage in such a coordinated manner of fraudulent trading have the propensity to continue to wreak havoc on the securities market and dump shares at artificially inflated prices on unsuspecting small shareholders.

Industry players hailed Sebi for cracking down on a growing menace.

“These elaborate orders should hopefully inject some fear into unauthorised tipsters and people offering unauthorised portfolio management services. Such actors damage the sanctity of capital markets in India,” said Nithin Kamath, founder and chief executive officer, Zerodha.

Calling Sebi’s order a powerful deterrent, he added that these scams had become the easiest game in town for manipulators.

Against such a backdrop, industry experts have also called for tighter regulations to curb unsolicited recommendations from influencers.

Sebi in its investigation carried out last year from April 27 to September 30 has affirmed the violation of the Sebi (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations.

The noticees have been directed to impound the unlawful gains and have been given 21 days for filing responses in the case.