Pump and Dump Scheme | 12 Jun 2024

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.