What are the “pumping and unloading” inventory processes, and what is the role of social media in this fraud

What are the “pumping and unloading” inventory processes, and what is the role of social media in this fraud

While technology has reduced transparency, educated investors, and made participation in capital markets convenient, it has opened up new ways for financial criminals to deceive investors as well.

Recently, several cases of market operators using social media, in particular Telegram, to operate “pump and dump” schemes have come to light.

The Securities and Exchange Board of India (SEBI) has issued an injunction against six people who orchestrated the stock manipulation.

What is the way to work?

The six defendants ran a Telegram channel where they were giving “stock advice” about which stocks would rise to the top. channels”Bull Run 2017“Around 52,000 subscribers are looking to gain market insights. Between July and December 2021, the group’s subscriber base grew from 35,016 to 51,980 users.

The “recommended” stocks were usually small companies with low trading volumes – the easiest to manipulate. Stocks with low trading volumes are highly affected by high demand or supply.

While simply “recommend” stocks was not a big deal in itself, operators would take big positions in recommended stocks before recommending them on the channel.

The accused will discuss the shares to be bought on WhatsApp, buy the shares and then dispose of them after the retail investors have accumulated the shares. With half of the subscribers following the group, and shares trading poorly, even a small participation can lead to significant gains for the operator.

In total, these operators offered ‘Rs Crore’ as per Sebi’s request. The stocks recommended by the channel included stocks such as Total Transport, Metro Global and several others.

The company’s influence is evident from the sudden rise in volumes after the recommendation — Total Transport’s 10-day average trading volume rose from 26,297 shares to 1,96,600 after the recommendation was made.

With continued recommendations, volumes eventually rose to 14,97,586 on July 20. The accused continued to trade the shares at different price points as the stock rose.

Source: Sibi

“Notifications have chosen an opaque Telegram platform to operate their scheme of fraud, deception and unfair trading, causing price gouging and various copy sizes,” Sebi’s request said.

Moreover, the notices lied about their credentials, despite their lack of much experience in the capital markets. With respect to the group, the notices claimed it had a combined 40-year experience in the markets. They even claimed that they were looking to register as research analysts with SEBI. However, the claim was completely false. As a result, subscribers buy recommendations without understanding the “outrageous design” of these channels.

Technology has made it easier for operators to reach larger audiences

This is not the first time that stocks have been manipulated using social media platforms. While stock manipulation has been an integral part of markets since time immemorial, technology has made it easier for manipulators to reach larger audiences through technology platforms.

Earlier, investors were down Receive messages that will announce new “confidential information” every day. These SMS will entice investors with promises of high returns within small time frames.

However, Sebi has taken action against the senders of these mass messages in partnership with the Telecom Regulatory Authority of India (TRAI).

In recent years, cross-platform social media influencers have turned into “investment gurus” of sorts with various recommendations without SEBI registrations.

In addition, they rarely disclose any conflict of interest when recommending a stock purchase. Their followers, many of whom have recently joined the markets, take positions in these stocks and allow influencers to make profits.

Some operators even work alongside the promoters and use their influence to make the price go up.

Difficulty tracking miscreants

While Sebi knows social media is being used to manipulate stock prices, it’s hard for him to know exactly who the mastermind is. With operators managing anonymous accounts to hide their identities, with platforms offering encrypted messaging services.

As a result, the only way to check for suspicious activities is to resort to searches and seizures. Without access to mobile phones for notifications, Sippy would not know the discussions that took place on WhatsApp.

Previously, in the WhatsApp leak case, Sebi could not prove that sensitive information was leaked. Other countries have faced similar problems as well, with most regulators educating investors on these issues, as action can only be taken in limited cases.

In addition to stocks, unregulated markets like cryptocurrencies have many “pumping and dumping” combinations as well.


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