The Sadhna Broadcast Ltd Scam: A case study of how celebs misuse their fame

Ah, it seems like Circuit has found himself in a new scheme, but this time it's not with his beloved Munna Bhai. No, no, this time, it's with his very own wife!

Picture yourself at a carnival where a group of people are gathered around a game booth. The vendor is shouting that anyone who can knock over all the bottles with one throw will win a huge prize. The crowd is getting excited, and people start lining up to play.

However, what if you found out that the game was rigged? 

What if the vendor had placed the bottles such that it was almost impossible to knock them over? 

What if the people who were cheering the loudest were actually working for the vendor, trying to create a sense of excitement and urgency?

This is what happens in a pump-and-dump scheme. A group of people work together to create an illusion of success and opportunity around a particular stock or asset. They spread false or misleading information, hype up the stock through social media or other channels, and attempt to create a sense of urgency or FOMO (fear of missing out) among potential investors.

More often, the people who get caught up in something like this are people who don’t have the know-how about the securities, to begin with. And in an attempt to get rich quickly, they instead get wrecked.  

Once the price of the stock has been artificially inflated to a high enough level, the perpetrators then sell off their own shares at a profit, leaving other investors holding the bag. The price of the stock then crashes, leaving many people with significant losses.

To avoid falling victim to a pump-and-dump scheme, investors must conduct thorough research and due diligence before investing in any security or asset. Additionally, regulatory bodies such as SEBI work to monitor and prevent fraudulent activities in financial markets.

Pump and dump schemes are illegal activities that occur in financial markets all over the world, including India. To understand this concept, let's look at a very recent instance. SEBI has recently taken action against 31 individuals, including actor Arshad Warsi and his wife Maria Goretti Warsi, along with Manish Mishra, for their alleged involvement in manipulating shares of Sadhna Broadcast.

The one where Arshad Warsi short "circuit" Sadhna Broadcast Ltd

As per SEBI's findings, the accused had uploaded misleading videos on YouTube to influence the stock prices of the company. As a consequence of their actions, SEBI has banned these individuals from buying, selling or dealing in securities. This move is a part of SEBI's efforts to maintain transparency and fairness in the Indian stock market. 

According to reports, Manish Mishra, who created the YouTube channels 'Moneywise' and 'The Advisor,' was involved in promoting the purchase of Sadhna Broadcast Ltd shares, which inflated their price, after which he disposed of them. Mishra allegedly spread misinformation by claiming that the Adani Group would acquire Sadhna Broadcast Ltd and that this acquisition would improve the company's margins.

In another video, he stated that the company was moving from TV production to movie production, and a large American corporation had entered into a contract to produce four devotional movies. The American investor would bring in the money, but the rights would remain with Sadhna Broadcast Ltd. These false claims may have encouraged investors to purchase the company’s shares, leading to price inflation before the shares were dumped.

Analysis of Sadhna Broadcast Ltd

The Company is engaged in the business of launching television channels for news, films, music, serials, and other programmes and carrying on the business of the same programmes. They also operate as a feature agency on a worldwide network having stringers, special correspondence, and representatives at different centres and other allied activities. There has been no change in the nature of business during the year under review by the Company.

Sadhna Broadcast Ltd, with a market capitalisation of only ₹52.74 crore and a shareholding pattern dominated by public holdings at 74.42%, is particularly susceptible to manipulation of this nature. This is because stocks with small market caps like this are often less liquid, which means that there are fewer buyers and sellers. As a result, they are more prone to larger price swings and greater volatility.

Because small-cap stocks have a smaller market capitalisation, they often have fewer outstanding shares, making it easier for individuals or groups to manipulate the stock price. For example, a group of investors could buy a large number of shares of a small-cap stock and then start spreading rumours or releasing false information about the company's prospects.

This could cause retail investors to become interested in the stock, leading to increased demand and driving up the price. Once the price has increased to a certain level, the original investors can then sell their shares for a profit, leaving other investors holding the bag. Hence, the name "pump and dump" scheme. 

It is illegal, as mentioned earlier, and can have serious consequences for both the manipulators and the unsuspecting investors who fall prey to the scheme. However, because small-cap stocks are less regulated and less closely followed by analysts and the media, they are often seen as an easy target for these types of schemes.

The Bottom Line

The recent action taken by the Securities and Exchange Board of India (SEBI) against individuals involved in manipulating the stock prices of Sadhna Broadcast Ltd is a commendable move towards ensuring transparency and fairness in the Indian stock market. The accused used misleading videos on YouTube to influence the stock prices of the company, which adds to the list of examples of a "pump and dump" scheme. Small-cap stocks, like Sadhna Broadcast Ltd, are often the target of such schemes due to their smaller market capitalisation and fewer outstanding shares.

Investors must exercise caution and conduct thorough research before investing in any opportunity. It is essential to remember that not all small-cap stocks are easy to be involved in pump-and-dump schemes, and there are many legitimate investment opportunities in this category of stocks. However, investors must remain vigilant and avoid investments that seem too good to be true, as they could be at risk of falling prey to such schemes. Overall, SEBI's efforts to maintain fairness and transparency in the Indian stock market should be appreciated and supported.