How 15 people defrauded investors off Rs 2.09 cr with bulk SMS-es and impersonation

The Sebi investigators also that 22.2 percent of the trading volume that was created in the stock in the investigation period was through non-genuine trades

By sending bulk SMS-es disguised as a stock tip from a reputed brokerage, and by doing circular trades to pump up volumes in the stock, fifteen people managed to make a profit of Rs 2.09 crore, according to the market regulator.

The Securities and Exchange Board of India (Sebi) passed an order fining them amounts ranging between Rs 5,00,000 and Rs 8,00,000 each, on June 16. The fines totalled Rs 87 lakh.

The investigation, done of trades between January 24, 2018, and April 20, 2018, revealed a pump-and-dump scam in the scrip of Kapil Raj Finance.

In 2014, 49 entities had been issued 49,40,000 shares through preferential allotment for a price of Rs 10 per share. Out of these 49, the 15 entities under investigation sold 13,87,387 shares for Rs 25 during the SMS circulation period.

The SMS-es were sent in three batches, and during the broadcast of each batch, the price and the number of unique investors trading in the stock went up. The SMS sender’s id was given as AX-ICISEC, giving an impression that it was coming from ICICI Securities, noted the Sebi order. The brokerage had filed a complaint with Sebi in this regard, the order added.

SMS manipulation

Before the first batch of SMSes were sent out, the price of the stock had fallen from Rs 35 to around Rs 31. But during the broadcast of the messages, the price rose to Rs 32.45; and the number of unique investors “lured” to the stock went up from 56 to 846.

Before the second batch, the price had plummeted from around Rs 30 to Rs 17.8. But during the second broadcast, the price recovered to Rs 21.55; and number of unique investors went up from 128 to 1,980.

Before the third batch, the price had dropped from Rs 21.12 to Rs 15.2. During the third broadcast, the price rose from Rs 14.45 to Rs 21.20; and the number of unique investors went up from 116 to 1,013.

The Sebi investigators also that 22.2 percent of the trading volume that was created in the stock in the investigation period was through non-genuine trades. That is, the stock was bought and sold among a few to create the impression of market interest in the stock.

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The investigators found that these 15 entities had contributed a large majority — nearly 80 percent — of the non-genuine trading volume.

“By creating artificial volumes, they lured 3,538 new retail investors into trading in the scrip. They also maintained price levels through their circular trades thereby creating a misleading appearance of trading in the scrip as their net LTP stood at 7.25 during the IP whereas the price of scrip moved by -10.9. This enabled preferential allottees to sell 13,87,387 shares at an average price of Rs 25,” stated the order.