Pump and Dump scheme

Current Context : The Securities Exchange Board of India’s (Sebi) fined on 11 individuals of Rs 7.75 crore for allegedly operating a ‘pump and dump’ scheme.

ABOUT PUMP AND DUMP

• A pump and dump scheme is a type of manipulation activity that involves artificially inflating the price of a stock through false and misleading information.
• Aim : to sell the stock at the inflated price and leave investors with significant losses.
• It is operated through Telegram and other social media channels.
• Prevalent in the micro-cap and small-cap sectors, where companies often have limited public information and trading volumes are lower.
• Impact: Those who bought into the hype and purchased the stock at inflated prices typically face substantial losses when the stock price crashes.
• Participants in pump and dump manipulation can face severe legal penalties, including fines, disgorgement of profits, and imprisonment.
• Regulations: Under the Securities and Exchange Board of India’s (Sebi) guidelines, pump and dump schemes are completely banned.