How YouTube is used to ‘pump and dump’ stocks

How does ‘pump and dump’ work?

The manipulator starts a YouTube or Instagram channel on the stock market. Huge sums are spent on promotions to increase the reach of the channel. In the cases of Sadhna Broadcast Ltd and Sharpline Broadcast Ltd, an amount of ₹4.72 crore was spent to promote channels with names like Moneywise, The Advisor, Midcap Calls and Profit Maker. Then, false claims are made about the stock (pump). For instance, in the case of Sharpline, claims around the Adani group acquiring the company were floated. Once unsuspecting investors purchase the stock, the manipulators sell it (dump).

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Is Sebi able to unearth such scams?

The Securities and Exchange Board of India (Sebi) uses a sophisticated investigation process. It looks at whether the perpetrators belong to the same family, know your customer (KYC) details, etc in order to check whether there is a nexus between seemingly unrelated parties transacting in the stock market. Earlier, scamsters used their own accounts or those of family members. Now they use conduit accounts (accounts for hire) of unrelated parties. Sebi was able to detect a similarly sophisticated system of unrelated parties in the Axis MF frontrunning case.

How should you protect yourself?

Avoid financial advice from YouTube or other social media app. Content creators do not always disclose paid relationships. Sometimes, these relationships are not disclosed prominently or with clarity. One can use social media to consume information on a particular issue. However, financial advice should ideally come from a Sebi-registered investment advisor.

What about ‘finfluencers’?

Financial influencers or ‘finfluencers’ give financial advice on social media channels such as YouTube, Facebook, Instagram and Twitter. Many of them have huge followers and earn considerable sums of money. They monetize by advertising products and services. Alternatively, they offer paid ‘educational courses’ to make money from subscribers. However, as long as they don’t sell bespoke advice (covered by Sebi rules), they are not breaking the law. But be cautious—there could be hidden conflicts of interest.

What are the warning signs?

A content creator offering a guaranteed rate or return, or suggesting a fool-proof way to make money is a red flag. Claims made by such content creators, like an impending acquisition, can be checked on the websites of stock exchanges. Also cross-check claims with mainstream media reports. In the case of Sharpline, the Adani acquisition claim had been denied in an exchange filing. Also, watch out for influencers promoting risky products like cryptocurrency, futures and options or small, unknown stocks.