An elaborate pump-and-dump scheme that involved 19 entities, including the director of the company whose stock was being manipulated, has been busted by the market regulator. It involved circular trading for a few months and raising the prices till finally recommending the stock on two Telegram channels and dumping of the holding.
The noticees have been fined a total of around Rs 12 crore including the fine imposed on the Telegram channels' operator of Rs 50 lakh.
On May 22, the Securities and Exchange Board of India (Sebi) fined Rajneesh Kumar, the director of Superior Finlease Rs 5 crore; go-betweens Ashish P Shah and Kirtidan K Gadhavi Rs 2 crore each; a third go-between Jalaj Agrawal who hired a Telegram-channel operator for the scheme Rs 2 crore; the Telegram channel operator Arvind Shukla Rs 50 lakh; and other entities Rs 10 lakh each.
According to the regulator's order, the entire buying that led to the price-rise was being financed through two firms--a non-banking finance company (NBFC) Superior Finlease and stock broker Indian Finance Guaranty Ltd (IFGL)--where Rajneesh Kumar was the director.
How it unfolded
The buying was being done by connected entities between February 1, 2021, and September 13, 2021 (or the 'price-rise period'). Then, on September 14, 2021, the stock was recommended through two Telegram channels hired by people connected to Rajneesh Kumar.
The Sebi investigations revealed that the stock's price had risen considerably--even more than 100 percent over 8 months--from Rs 100 on February 1, 2021, to Rs 183.75 on September 13, 2021.
It rose further by another 20 percent on a single day, when the recommendation was made on the Telegram channels. On that day, or on September 14, 2021, the price went up by as much as Rs 220.
Thereafter the price saw a steady decline to close at Rs 63.15 on September 30, 2021.
The trading volume also saw a significant spike on the day on which the recommendation was made on the Telegram channel. The volume rose from 9,440 shares (between February 1, 2021, and September 13, 2021) to 2,28,337 shares. That is a whopping 24x increase on recommendation day.
Also read: M&A experts welcome Sebi norms that protects buyouts from rumour-driven price surges
The regulator had passed an interim order on the same matter on January 25, 2023. It had impounded unlawful gains of more than Rs 2.13 crores earned by manipulating the stock price during the given period, and unlawful gains of over Rs 1.75 crore generated by dumping the stocks on the day the recommendation was made.
The noticees had approached the Securities and Appellate Tribunal (SAT). Following SAT's instructions, a hearing was given to some of the noticees, and Sebi passed a miscellaneous order on August 24, 2023, which allowed for one person's accounts to be defreezed and which retained the other directions as was.
Rajneesh Kumar filed another application with SAT and the tribunal, in its order dated May 2, 2024, noted the Sebi representative's submission that the order in this regard would be passed by the market regulator within three weeks from that day.
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