Arshad Warsi Banned By SEBI For 'Sadhna Pump-and-Dump' Scam — The Controversy Explained

Market regulator SEBI on Thursday fined Bollywood actor Arshad Warsi Rs five lakh and banned him from trading for one year for a stock manipulation scheme. His wife and brother were also among 64 individuals named in the SEBI order, which is linked to a company called Sadhna Broadcast Ltd.

Warsi has been fined for aiding a pump-and-dump scheme involving Sadhna Broadcast Ltd, SEBI said. Its 109-page order also named Warsi’s wife Maria Goretti and brother, Iqbal Warsi.

The SEBI order follows its March 2023 directive barring the Warsis from trading. The Securities Appellate Tribunal (SAT) had later limited the ban to SBL shares and ordered them to deposit 50% of over Rs 60 lakh gains in escrow. They were asked to submit the remaining amount after the final order. The final order issued on 29 May complies with the SAT directive, ahead of the May 31 deadline set for concluding the probe.

A pump and dump scam is a technique used by scammers to fraud retail investors, looking for potentially higher gains in small-cap or SME stocks. According to SEBI, scammers lure unsuspecting investors through Telegram or WhatsApp groups. They promise "multi-bagger" stock tips to these investors. In these groups, scammers post fake profit screenshots and suggest stocks that initially rise and gain credibility among investors. 

This follows an environment of "urgency" created by the scammers, asking people to buy a particular stock, signalling high returns. Then comes 'The Pump', where manipulated buying drives up stock prices. At the peak, scammers execute 'The Dump' by selling their shares for profit, which results in crashing the price of the stock.

According to SEBI’s probe, SBL, renamed Crystal Business System Ltd, was at the centre of a coordinated manipulation scheme. Between March to November 2022, the scheme involved running a digital campaign such as YouTube videos to falsely project a turnaround in SBL’s prospects. A person named Manish Mishra has been found to be allegedly running these YouTube channels identified: The Advisor, Moneywise and Profit Yatra.

These videos also claimed a false acquisition of the company and shared inflated target prices. As investors’ interest grew, entities tied to promoters and video creators sold 16 million shares worth over Rs 33 crore.

In March 2022, the promoters held 40.95% of the company. By December, the holding had reduced to 25.58%. Arshad Warsi has been accused of being aware of this scheme. On July 13, 2022, he and his wife acquired a significant amount of shares of the company. Both liquidated their holdings the next day, earning Rs 81.4 lakh and Rs 90.2 lakh, respectively.

Arshad Warsi claims to be unaware of the scheme. However, SEBI said it found WhatsApp chats and trade patterns showing he knowingly aided a pump-and-dump scheme in SBL shares, acting on instructions from Mishra.