MUMBAI: Markets watchdog Sebi has confirmed reports in a section of the media that it had carried out raids in multiple locations and on multiple shell companies for what it considers to be cases of pump and dump scams.
“Sebi has conducted search and seizure operations at multiple locations in June in connection with pump and dump in certain scrips and has seized incriminating evidence,” Sebi said in a statement Friday, confirming various news reports regarding its raids in the pump and dump scam.
“Further investigation in the matter is under progress,” the regulator added in the statement without offering any more details such as the number of companies raised or the value of the alleged scam etc.
Some section of the media has been reporting since last week that Sebi raided around two dozen shell companies involved in the Rs 300-crore pump and dump’ scheme across Ahmedabad, Mumbai and Gurugram. These raids are one of the biggest in Sebi’s history in terms of monetary value.
The raids primarily involved 15-20 shell companies which were allegedly created by promoters of some listed companies to pump and dump their own shares. At least two listed agro-tech companies along with their promoters are said to be at the helm of the alleged network, sources had said.
“Sebi has seized several documents including company documents, rubber stamps. Preliminary assessment suggests the scam was at least Rs 300 crore, however more details would emerge once the seized documents are analysed,” a source was quoted by one such report.
Generally, in cases of pump and dump schemes, Sebi issues an order against the entities. In in very few cases, Sebi also uses its search and seizure powers against the entities like in the current case.
The pump and dump scam works in the following manner: promoters create shell companies and register them as proprietary traders which will buy and sell the company stocks later. In the past, there have many instances where Sebi has gone after promoters of small and mid-cap companies for manipulating their stocks.
In a pump and dump scheme, entities related to the scamsters first start buying shares of own companies in large numbers to drive up the stock price and once the price has gone up significantly, it catches the attention of retail investors and the manipulators then exit the stock at a profit by selling the shares to gullible retail investors.
In one such case the Sebi investigators have found that the stock price of a little known company rose from below Re 1 to Rs 40 in a span of less than a year and then the stock again fell back to about Rs 2-3. This happened despite there being any change in terms of business of the company or its earnings, clearly indicating a fraudulent scheme.
The Sebi is also said to be monitoring some Telegram channels where these stocks are being advertised by non-Sebi registered analysts and is looking at whether these Telegram groups are also part of the manipulation scheme.