SEBI Cracks Down on Pump-and-Dump Scam Involving Bollywood Actor Arshad Warsi

In a sweeping regulatory move, the Securities and Exchange Board of India (SEBI) has barred Bollywood actor Arshad Warsi, his wife Maria Goretti, and 57 other individuals from participating in the securities market for periods ranging from one to five years. This action comes after SEBI’s investigation into a pump-and-dump scheme linked to Sadhna Broadcast Ltd, now renamed Crystal Business System Ltd.

The Pump-and-Dump Scheme: What Happened

According to SEBI’s final order issued on Thursday, the scheme involved a coordinated effort to artificially inflate the price of Sadhna Broadcast shares through misleading YouTube videos, generating public interest and driving retail investors to buy in. Once the price spiked, key players dumped their shares at inflated prices, pocketing massive profits before the stock crashed.

SEBI's probe covered the period between March 8, 2022, and November 30, 2022.

Who Benefited and What Are the Penalties?

Gaurav Gupta emerged as the largest beneficiary, making a profit of Rs 18.33 crore.

Sadhna Bio Oils Pvt. Ltd gained Rs 9.41 crore.

SEBI ordered disgorgement of Rs 58.01 crore in unlawful gains from all 59 entities involved, with 12% annual interest from the end of the investigation period until full payment.

Arshad Warsi and Maria Goretti were each fined Rs 5 lakh.

These penalties are part of SEBI's broader crackdown on fraudulent market activities that harm retail investors and undermine market integrity.

What Is a Pump-and-Dump Scheme?

Pump and dump is a form of securities fraud where the price of a stock or other asset is artificially inflated so insiders can sell at a profit, followed by a sharp decline in value that leaves unsuspecting investors with significant losses.

How It Works:

Pump:

Insiders or coordinated groups spread false or exaggerated information to hype up a stock.

Retail investors, seeing the rising prices, rush to buy in.

This pushes the stock price even higher.

Dump:

Once the price reaches a desired level, insiders sell their holdings.

The stock price plummets, causing massive losses to latecomers.

Why Is It Illegal?

In regulated markets, pump-and-dump is considered securities fraud and is punishable under laws like the Securities Exchange Act in the U.S. and relevant Indian laws under SEBI regulations.

In unregulated or loosely regulated markets (such as certain cryptocurrency exchanges), enforcement is more challenging, though regulators are increasingly cracking down on such schemes.

For investors, this serves as a stark reminder: always research thoroughly and beware of too-good-to-be-true tips, especially on social media platforms.