Rapid Fire
Pump and Dump Scheme
- 12 Jun 2024
- 2 min read
Recently, the Securities Exchange Board of India (SEBI) has slapped a fine on 11 individuals for allegedly operating a ‘pump and dump’ scheme.
- 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, only to sell the stock at the inflated price and leave investors with significant losses.
- This manipulative tactic is particularly prevalent in the micro-cap and small-cap sectors, where companies often have limited public information and trading volumes are lower.
- Under the SEBI guidelines, pump-and-dump schemes are completely banned.
- Participants in pump-and-dump manipulation can face severe legal penalties, including fines, disgorgement of profits, and imprisonment.
- These schemes undermine confidence in the financial markets making legitimate investors wary of potential fraud.
- Pump and Dump scheme is different from Insider trading as there is no misuse of confidential information of company in pump and dump scheme.
- While, Insider trading is buying or selling a publicly traded company's stock by someone with information that could substantially impact an investor's decision to buy or sell a security that has not been made available to the public.
