Markets regulator the Securities and Exchange Board of India (SEBI) has recently adopted a tough stance against social media platform creators for manipulating stocks of listed companies by engaging in a pump-and-dump scheme.
In a swift move, 55 entities have been barred from the securities market for alleged price manipulation on the YouTube channel on Thursday. The markets regulator was forced to act after several complaints were raised against false content about companies uploaded on the social media platform to lure investors.
So, what exactly is a pump-and-dump scheme? It is basically a manipulation scheme through which the price of a stock can be pumped or boosted by spreading false or misleading information about a company’s stock price.
Generally, the fraudsters of such schemes are known to hold an established position in the company stock. After the pump, such fraudsters dump their own stock by selling them at inflated prices. Once the stock pumping is stopped, the stock prices tend to witness a fall and investors lose their money.
An investor in the stock market can identify the traits of a pump-and-dump scheme if they conduct adequate tracking. For instance, a stock is considered to have witnessed organic growth if there has been high trade volume which has resulted to an increase in stock price. However, if the stock prices have witnessed an uptick due to low volumes of trade, it indicates a cause for concern.
Also, keep an eye on spam e-mails considering a legitimate company would always use an official channel for communication with the public.
Of late, stock recommendations on social media have witnessed a rise where individuals brag about how good of an investment they have bagged and paid-promotion to hype a particular company stock. One must remain vary of such manipulation on the social media platform, which is quite easy for anyone to manipulate.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.