In recent weeks, India’s financial watchdog, SEBI (Securities and Exchange Board of India) exposed a Rs.300 crore scam involving fake companies and stock manipulation. Using platforms like YouTube, WhatsApp, and Telegram, scammers ran what is known as a ‘pump and dump’ racket. This scam has become one of the most dangerous traps for new and inexperienced investors, who often enter the stock market with the dream of earning quick money.
Let’s break down how this scam works, who is behind it, and how investors can protect themselves.
What is a Pump and Dump Scam?
A pump and dump scam is a stock market fraud in which scammers first inflate the price of cheap stocks (often called penny stocks) and then sell them at high prices, leaving other investors with huge losses.
In simple words, these fraudsters “pump” up the stock price by spreading fake news and hype, and once the price reaches a high point, they “dump” their shares by selling all of them at once. This sudden selling causes the stock price to crash, and common investors are left stuck with almost worthless shares.
How Does This Scam Work in Real Life?
Let’s understand with an example.
Imagine a penny stock that trades at Rs.1 per share. A group of scammers secretly buys a large number of these shares. Then they start promoting the stock aggressively on YouTube, Telegram, WhatsApp, and even with the help of influencers. They spread false information like:
- The company has signed a huge foreign deal
- A big player is going to take over the company
- The stock will rise 50 times in the next few weeks
Thousands of retail investors fall into the trap and start buying the stock. This increased demand pushes the price to Rs.10, then Rs.20, and sometimes even Rs.40. But at that moment, when the price is at its highest, the original scammers quietly sell all their holdings and exit the game.
As soon as they dump their shares, the stock crashes. Retail investors who bought at higher prices find themselves in deep losses. Many are not even able to sell their shares because the stock hits the lower circuit and trading freezes.
Penny Stocks: Easy Target for Fraudsters
Most pump and dump scams use penny stocks, i.e., those that trade at Rs.1, Rs.2, or Rs.5. These stocks are easy to manipulate because:
- They have low trading volume
- Companies behind them are usually less known or non-transparent
- A small amount of buying can make the price jump sharply
Due to the lack of solid information about these companies, it becomes easier for scammers to spread fake news and create a false buzz.
Role of Social Media in This Scam
The internet has given fraudsters a very powerful tool—social media. YouTube channels, Telegram groups, WhatsApp forwards, and even influencer endorsements are used to convince lakhs of people to invest in a stock. These people often claim to be “market experts” or “financial advisors,” but in reality, they are paid to misguide viewers.
They show fake charts, false news, and edited screenshots to gain trust. Many new investors, who don’t do proper research, easily fall for such tricks.
SEBI Cracks Down on Scamsters
The good news is that SEBI is not sitting quietly. In the past year, SEBI has taken action against several high-profile people involved in such scams:
1. Arshad Warsi and Maria Goretti Case
Bollywood actor Arshad Warsi and his wife were banned from trading after being found guilty of promoting shares of Sadhana Broadcast Ltd. through fake YouTube videos. The scam earned them and others Rs.58.01 crore in profits.
2. Sanjeev Bhasin and Group
Popular TV stock expert Sanjeev Bhasin and 11 others were penalised for illegally earning Rs.11.37 crore. They were accused of giving stock tips on air after already buying the same shares for themselves, and then selling them once prices rose.
3. YouTuber Ravindra Balu Bharti
SEBI also targeted Ravindra Bharti, a YouTuber with over 2 million subscribers, for misleading investors with false stock recommendations. He too was part of a ‘pump and dump’ scam.
Why Retail Investors Suffer the Most
Retail investors are often unaware of the risks and do not check company fundamentals. They act on viral messages or trending videos, believing they will earn quick profits. But once the price crashes, they find themselves unable to exit due to:
- Lower circuits
- No buyers
- Huge losses
In many cases, the stock stays stuck for weeks or months, with no chance of recovery.
SEBI’s Advice to Stay Safe
SEBI has shared some important tips to help investors protect their money:
✅ Do your own research
Never rely only on social media or random tips. Always check the company’s balance sheet, business model, and management.
✅ Avoid penny stocks without proper information
If a company is unknown and its share price is too low, be extra cautious.
✅ Beware of sudden price jumps
If a stock starts climbing without any solid reason, stay away.
✅ Consult registered advisors
Always seek advice from SEBI-registered financial experts, not random influencers.
Final Thoughts
Stock market investing can help grow your money, but only if done wisely. Scams like pump and dump can ruin your savings in minutes. Don’t chase shortcuts. Learn the basics, do your research, and avoid falling for shiny promises.
The responsibility of protecting your money lies with you first. Stay alert, stay safe.
