Sebi raids shell companies involved in Rs 300 ‘pump and dump’ scheme across Ahmedabad, Mumbai and Gurugram

Sebi conducted the raids on Wednesday.

Market regulator the Securities and Exchange Board of India (Sebi) conducted raids across Ahmedabad, Mumbai and Gurugram to bust a Rs 300 crore pump and dump racket on Wednesday, said two people with direct knowledge of the matter. These raids are the biggest carried out by Sebi in terms of monetary value, said the people cited above.

The raids primarily involved 15-20 shell companies which were allegedly created by promoters of certain listed companies to pump and dump their own shares. At least two listed agro-tech companies along with their promoters are said to be at the helm of the alleged network, the people cited above added.

“Sebi has seized several documents including company documents, rubber stamps. Preliminary assessment suggests the scam was atleast Rs 300 crore, however more details would emerge once the seized documents are analysed by Sebi,” said one person cited above.

Generally, in cases of pump and dump schemes, Sebi issues an order against the entities. In in very few cases, Sebi also its search and seizure powers against the entities like in the current case.

In the alleged fraud, the promoters of the companies created shell companies which registered as proprietary traders which bought and sold the company stocks. In the past, there have many instances where Sebi has gone after promoters of small and mid-cap companies for manipulating their stocks. In pump and dump schemes, the entities related to perpetrators first start buying shares is large number to drive up the stock prices. Once the price has gone up significantly, it catches the attention of many retail investors and the manipulating entities exit the stock at profit by selling the shares to gullible retail investors.

“The stock of one of the companies in question rose from below Re 1 to Rs 40 in a span of less than a year and then the stock again fell back to about Rs 2-3. There has been no change in terms of business of the company and its earnings did not witness any meaningful change clearly indicating a fraudulent scheme,” said one of the persons cited.

The regulator is also said to be probing certain Telegram channels where these stocks were being advertised by non-Sebi registered analysts. “The regulator is trying to ascertain if the Telegram groups were also part of the manipulation scheme,” this person  added.