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Explained: How YouTube is used to manipulate share prices in pump and dump schemes

India’s stock market regulator has passed two interim orders against several entities, after it examined complaints alleging that “misleading” YouTube videos were being uploaded to lure investors

India’s stock market regulator, on March 2nd, passed two interim orders against 55 entities that used YouTube to manipulate share prices.

The orders were issued by the Securities and Exchange Board of India (SEBI) after it examined complaints alleging that “misleading YouTube videos with false content, backed by paid marketing campaign worth crores of rupees for additional reach, were being uploaded to lure investors. Once these unsuspecting investors entered the scrip, the said entities allegedly offloaded their holding at an inflated price.” Such practices are referred to as pump and dump schemes.

Why does this matter: Pump and dump schemes benefit the price manipulators, while severely hurting unsuspecting retail investors, many of whom invest their hard-earned money into these stocks. SEBI’s crackdown on such practices is necessary to prevent the undermining of confidence in the share markets and to protect investors from scams.

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Who was investigated by SEBI? The two orders issued by SEBI pertain to shares of the following companies:

  1. Sadhna Broadcast Limited – A Delhi-based company engaged in the “business of launching television channels and to carrying out the business of TV news, films, music, serials, etc.”  31 entities have been sanctioned by SEBI for being involved in the manipulation of Sadhna’s scrip between April 27 to September 30, 2022.
  2. Sharpline Broadcast Limited – Also a Delhi-based company engaged in the same line of business as Sadhna. 24 entities have been sanctioned by SEBI for being involved in the manipulation of Sharpline’s scrip between April 12, 2022, to August 19, 2022.

In both cases, the entities that have been sanctioned include the creators behind the YouTube videos in question, promoters of the company, certain shareholders who held shares before the price manipulation, certain shareholders who traded shares to cause a rise in trading volumes and interest in the company, and information carriers who served as links between various entities such as the company promoters and YouTube video creators.

Which YouTube channels were involved in promoting false information?

In the case of Sadhna, five videos promoting the company were uploaded on two YouTube channels namely:

  1. The Advisor – Around 8.24 lakh subscribers as of February 2023, run by Manish Mishra
  2. Moneywise – Around 7.68 lakh subscribers as of February 2023, run by Manish Mishra

And in the case of Sharpline, the following YouTube channels promoted the company in four videos:

  1. Midcap Calls –  Around 4.29 lakh subscribers as of December 2022, run by Manish Mishra
  2. Profit Yatra –  Around 3.35 lakh subscribers as of December 2022, run by Manjari Tiwari, but could have been indirectly controlled by Manish Mishra as one of the emails linked to the channel was the same as the email used for Midcap Calls, SEBI suspects.

SEBI obtained details of the administrators behind these channels from Google.

How did these YouTube videos manipulate the share prices: 

For both Sadhna and Sharpline, the videos uploaded by the above YouTube channels “peddled false and misleading news” to recommend that investors should buy the two stocks  “for extraordinary profits.”

For example, some of the claims made in the videos include:

  • “The company has 5G license. SBL is going to be taken over by Adani group. The margins of the company will increase after the deal.”
  • “Big Mutual funds have already bought the stock.”
  • “The current price of the share is INR 30 and it will become INR 240 within the next 3 months and INR 750 within the next one year.”
  • “A big American corporation has entered into a contract for Rs. 1,100 crores to produce 4 devotional movies where the money will be brought in by the American investor but the rights will remain with SBL.”

“These YouTube Channels had lakhs of subscribers and the misleading YouTube videos had crores of viewership aided by promotion through paid advertising campaigns,” SEBI found.

This promotion led to a rise in the price and trading volume of both the scrips, contributed by a large number of retail investors likely influenced by the videos.

After the price rose, certain promoter shareholders, key management personnel, and some large non-promoter shareholders appear to have “offloaded a significant part of their holdings at inflated prices and booked profits,” SEBI explained.

How did the share price move after the videos were uploaded? SEBI shared the following two graphs to explain the correlation between the videos and the share prices and trade volume.

Share price of Sadhna between January 2022 to September 2022. Source: SEBI

Share price of Sharpline between April 2022 to August 2022. Source: SEBI

How much was spent to promote the misleading videos:  Manish Mishra, who ran The Advisor, Moneywise, and Profit Yatra channels, spent over Rs. 4.7 crore on Google AdSense for promoting videos between January 2022 and September 2022, out of which Rs. 1.17 crore was spent on videos promoting Sharpline and Rs. 65 lakhs were spent on videos promoting Sadhna, SEBI suspects based on bank statements of Mishra.

How much profit was made: In the Sadhna case, a total profit of Rs. 41 crores was made by 26 entities, and in the Sharpline case, a total profit of Rs. 12 crores was made by 25 entities.

How widely were the videos watched: The 9 YouTube videos in question received a total of over 5 crore views cumulatively. “There was thus a prima facie deliberate attempt to widely disseminate the content of the videos uploaded on the Channels,” SEBI noted in both orders.

How are the various entities connected? In both cases, the creators that made the YouTube videos, the promoters of the company, and other shareholders who benefitted from the stock manipulation were found to be connected to each other.

SEBI used KYC details, bank statements, Ministry of Corporate Affairs records and call data records (CDRs) received from Telecom Service Providers to establish the connections—a pictorial representation of which is provided below:

Connections between the various entities in the Sadhna case. Source: SEBI

Connections between the various entities in the Sharpline case. Source: SEBI

The SEBI order explains in more detail how the regulator established these above connections, including sharing details of how many times calls were made between the various connected entities and for how long.

Notably, several entities in both companies are connected to each other as well. For example, Gaurav Gupta, a promoter of Sadhna, held shares in Sharpline (the other company) before the price manipulation and sold them after.

Why SEBI found the videos misleading: 

  • The videos contained “false and deceptive statements about the growth story and future prospects of the company”
  • The channels turned off the comment section on their videos” to avoid any negative counter view to the messages disseminated”
  • The videos suggested an “abnormally high target price” for the shares
  • The enormous expenditure on ads appears to be an effort to lure investors
  • Manish Mishra and Manjari Tiwari sold shares in the company their videos promoted, even as the videos themselves were recommending people to buy those shares
  • Videos were uploaded with false content even after Sadhna made a public announcement refuting claims made in earlier videos

What action has been taken against the various entities?

While a full investigation is pending, here are a few of the interim directions issued by SEBI:

  • No dealing in securities: All the concerned entities (55 entities in total) are restrained from “buying, selling or dealing in securities either directly or indirectly, in any manner whatsoever until further orders.” If they have any open positions in exchange-traded derivative contracts, the same needs to be squared off within 3 months.
  • Impounding of illegal gains: The concerned entities must bear the liability for the illegal profits made by them (the specific amounts are laid out in the order). Some entities, who have a higher degree of responsibility for the scheme, as deemed by SEBI in its orders, are liable for the total amount of illegal gains and not just the gains they have made. Accordingly, the bank accounts of the concerned entities will be impounded to cover their respective liabilities. Additionally, banks must ensure no debits are made in these accounts.
  • Deposit impounded amount in an escrow account: The concerned entities must open an escrow account and deposit the impounded amount within 15 days. The money in this account will not be released without permission from SEBI.
  • Provide details of all assets and not dispose of them: The noticees must provide details of all assets held in their name (moveable and immovable) within 15 days. They cannot dispose of or alienate any of these assets.

Actor Arshad Warsi and wife among the named entities: Bollywood actor Arshad Warsi and his wife Maria Goretti were among those who have been sanctioned by SEBI for participating in the scheme and making over 60 lakhs in illegal gains. The couple has, however, refuted the allegations claiming they have zero knowledge about stocks:

Strangely, Warsi’s tweet incorrectly refers to Sharda, while the company in question is Sadhna.

Which laws have been violated by these manipulation schemes: The manipulation carried out in the above two cases violated various provisions of the Securities and Exchange Board of India (SEBI) Act, 1992, and various regulations framed thereunder including SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (FUTP Regulations), SEBI said.

What next: SEBI will conduct a more in-depth investigation on the conduct outlined in the interim orders. The concerned entities can file their reply or objections within 21 days and may also request a personal hearing.

Note: The headline was changed on March 6, 2023, at 10:340 am to fix a grammatical error.

This post is released under a CC-BY-SA 4.0 license. Please feel free to republish on your site, with attribution and a link. Adaptation and rewriting, though allowed, should be true to the original.

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