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The Securities and Exchange Board of India (SEBI) has taken a broad regulatory action by prohibiting Bollywood star Arshad Warsi, his spouse Maria Goretti, and 57 other people from engaging in the securities market for one to five years. Following an inquiry by SEBI into a pump-and-dump scam connected to Sadhna Broadcast Ltd.—now known as Crystal Business System Ltd.—this action was taken.

The Pump-and-Dump Plan: What took place?

The scam featured a concerted attempt to use deceptive YouTube videos to artificially raise the price of Sadhna Broadcast shares, creating public interest and encouraging retail investors to purchase shares, according to SEBI’s final ruling, which was released on Thursday. Before the market plummeted, major participants pocketed enormous gains by selling their shares at inflated prices after the price increase.

The time frame for SEBI’s investigation was March 8, 2022, to November 30, 2022.

What Are the Penalties and Who Gained?

With a profit of Rs 18.33 crore, Gaurav Gupta was the biggest winner.

The profit for Sadhna Bio Oils Pvt. Ltd. was Rs 9.41 crore.

All 59 organizations implicated were ordered by SEBI to disgorge Rs 58.01 crore in illicit profits, plus 12% annual interest from the conclusion of the inquiry period till complete payment.

Maria Goretti and Arshad Warsi both received a Rs 5 lakh fine.

These fines are a component of SEBI’s larger campaign against dishonest market practices that hurt individual investors and compromise the integrity of the market.

A Pump-and-Dump Scheme: What Is It?

The practice of pump and dump, a kind of securities fraud, involves inflating the price of a stock or other asset so insiders may sell it for a profit. This is followed by a steep drop in value, which leaves unwary investors with large losses.

How It Operates:

Pump:

To boost a stock, insiders or organized organizations disseminate inaccurate or inflated information.

When they see the prices rising, retail investors rush to buy.

The stock price rises even more as a result.

Empty:

Insiders sell their stakes when the price hits the targeted level.

Latecomers suffer enormous losses when the stock price crashes.

What Makes It Illegal?

Pump-and-dump is regarded as securities fraud in regulated markets and is illegal under the Securities Exchange Act in the United States and applicable Indian laws as governed by SEBI rules.

Although authorities are progressively clamping down on such scams, enforcement is more difficult in unregulated or barely regulated marketplaces (like certain cryptocurrency exchanges).

This is a clear warning to investors to always do their homework and to be wary of advice that seems too good to be true, particularly on social media.