How a former hotel staff and two automobile diploma holders ran a massive Telegram pump-and-dump scheme

SEBI cracks down on a Telegram pump and dump scheme

You might have heard that it takes specialised knowledge to make money in the market. Millions of students and professionals across the globe burn the midnight oil poring over the nuances and patterns of scrip movement in the hopes of minting some money from the market.

However, three men from Gujarat - one a graduate in Tourism Management and the other two diploma holders in Automobile Engineering - show that one need not hold a degree in CA, CFA or MBA in finance to make a quick buck from the market.

Unfortunately, the three men- Himanshu Mahendrabhai Patel, Raj Mahendrabhai Patel and Jaydev Zala- were not able to hold on to the illegal gains, of Rs 2.84 crore made from running a Telegram-based pump and dump scheme, for long.

Himanshu has a Masters in Tourism Management and some experience of working in a hotel. The other two hold a diploma in Automobile Engineering.

Huge penalty

The Securities and Exchange Board of India (SEBI)- in an order that marks the regulator's increasing ire with social media-manipulated trading activities - directed the three stock manipulators to not just disgorge their illegal gains but also went on to impose a penalty of two times the illegal gains made taking the total amount to be paid by the trio to a whopping Rs 5.68 crore.

The trio have also been barred from accessing the markets, directly or indirectly, for a period of three years from the date of disgorgement of illegal gains.

Himanshu and Raj, the brothers in the group, executed their trading strategies by using the demat accounts of three of their family members.  SEBI has also taken a stern stance against the family members directing them to pay a penalty of Rs 5 lakh each. The 3 family members- the father, mother and sister of Himanshu and Raj - have also been restrained from accessing the markets.

Background 

The market regulator was alerted to the scalping scheme when it received two undated complaints in June and October of 2021 alleging that the social media platform Telegram was being used to artificially inflate stock prices.

On the basis of the complaint received, SEBI kickstarted an investigation into the affairs of the Telegram channel named, "bullrun2017/Bull Run Investment Educational Channel".

The Telegram channel that allowed only one-way communication had over 49,000 subscribers as of January 2022. In the Telegram channel, they represented themselves as 4 Research analysts with a combined experience of 40 years, who are in the "process of getting SEBI Research Analyst Registration".

The Telegram channel provided recommendations to its subscribers for trading in both cash as well as derivatives segments, for both intra-day as well as positional trades. The recommendations issued with respect to the cash segment were majorly focused on small-cap scrips. In the course of 11 months, the trio traded in a total of 148 scrips.

The market regulator's investigation revolves around the illegal gains made by the trio in two scrips, namely, Total Transport and Metro Global. As a consequence of the recommendations made by the Telegram channel, the total traded volume spiked up repeatedly, and on June 7, 2021, the traded volume was around 28 times the average daily traded volume of the preceding 10 trading days. In the case of Metro Global, the total traded volume on July 20, 2021, was around 18 times the average daily traded volume of the preceding 10 trading days.  The profits made by the group were also 3.5 times higher than the profit made by them on days when no recommendation was issued on the Telegram channel.

Modus operandi

Whole Time Member Ananth Narayan G explains their pump-and-dump protocol: The trio "would first buy shares of selected scrips in their trading accounts as well as in the trading accounts of family members, then, they would circulate favourable messages about those scrips through the Telegram channel amongst the thousands of subscribers, thereby enticing and inducing them to purchase those scrips, and immediately thereafter they would sell their pre-acquired shares of those specific scrips(about which they had circulated buy recommendations to the subscribers) thereby pocketing large amounts of profits for themselves."

The WTM also noted that the recommendations about specific scrips were made in an "ingenious and breathless manner so as to create a 'Fear of Missing Out' among the subscribers".