Sebi Confirms Investigation Underway In Pump-and-Dump Scheme - Know How Such Scams Operate

Sebi Pump and Dump Raids: On June 28 the Securities Exchange Board of India issued a clarification via a circular which stated that the market regulator has conducted several raids in the course of its investigation of a 'pump and dump' scam.

"Various news reports have appeared in media regarding Securities and Exchange Board of India (SEBI) raids in the matter of pump and dump scam," Sebi said.

What Is A Pump and Dump Scheme

A pump-and-dump scheme is a type of market manipulation tactic in which scamsters trick investors by spreading false or misleading information regarding a stock. This misleading information is spread to create a buying frenzy in the market, which increases the demand for the stock. Once the demand increases and the price of the stock jumps up on the basis of the demand, the scamsters sell their own shares at the 'inflated price' and stop hyping the stock. Once the demand for the stock declines and the price also falls, investors who had initially bought the shares end up losing their money.

What Sebi Found In Its Investigation

The market regulator mentioned in the circular that during the course of its investigation, it conducted several 'search and seizure' operations across multiple locations in the month of June. Notably, the market watchdog has found incriminating evidence during the course of its investigation. However, the market regulator added that the investigation is still underway.

"It is hereby clarified that Sebi has conducted search and seizure operations at multiple locations in the month of June 2025 in connection with pump and dump in certain scrips and has seized incriminating evidence. Investigation in the matter is under progress," Sebi said.

Sebi's clarification follows several media reports which claimed that the market watchdog had raided multiple entities for alleged involvement in pump-and-dump schemes. So far, the market watchdog has not named any entities or disclosed the locations at which the raids have been conducted or the amount of illegal gains made through this scheme.

How Does A Pump And Dump Scheme Work

According to Sebi's investor education website, a classic pump-and-dump scheme is operationalised in a modus operandi, which can be split into seven specific stages. Here's a look at how much pump-and-dump schemes typically work:

Baiting The Investors

The first stage in the scheme involves baiting investors who are looking for 'stock tips' on social media platforms such as Telegram and WhatsApp channels. Such investors are lured in with promises of great returns such as "multi-bagger stock tips". According to Sebi such channels typically target shares of Small and Medium Enterprises (SMEs).

Building Trust

In the second stage of the scheme, scamsters build trust by providing investors with a false sense of trust and legitimacy by either making up reports of 'past profits' or by giving them tips for stocks which might actually gain in price in the short term. This entices investors to take the investment tips given by the scamsters seriously.

Generating A Buzz

In this stage, the scamsters use their channels to generate buzz around a stock by amplifying the stock's potential to give great returns. This is typically done by sending enticing messages on the WhatsApp or Telegram channels, which typically say "Buy Now!", "To the Moon", etc. Thus re-inforcing that the stock can give good returns and increasing demand for the stock.

Pumping The Stock

Scamsters and their followers (who may or may not be part of the scam) buy the stock that they hyped in a frenzied manner. This frenzied buying artificially increases the stock's price.

Dumping The Stock

Once the price of the stock has been sufficiently inflated, the scamsters pare their stake in the stock, and this lowers the demand for the stock, causing its price to reduce drastically.

Investors End Up With Losses

Finally once the scam is complete the scamsters unlawfully earns gains from selling the stock at the inflated price while the scammed investors are left with significant losses in their portfolio.

How Can Investors Prevent Pump and Dump Scams

Retail participation in the securities market is at a record high, thus Sebi has also increased its scrutiny and deepened its emphasis on curbing market manipulations through malpractices. However, the investor's first line of defence is the investor's own presence of mind. According to Sebi's investor education website, investors can protect themselves from falling prey to pump-and-dump schemes by following these tips:

• Investors should not trade on the basis of unsolicited investment advice especially 'stock tips' which are given on dubious channels running on social media messaging platforms such as 'WhatsApp' and 'Telegram'.

• Investors should also be cautious of deals that sound too good to be true and beware of scamsters who lure investors with promises of 'guaranteed high returns' with little to no risk. The market regulator emphasises that no legal entity will make such claims.

• The market regulator also urges investors to compuslorily only take investment advice for their trades from Sebi recognised or Sebi registered intermediaries. Investors can check the full list of all Sebi registered investment advisors on their website.

• Lastly the market regulator urges investors to report any suspicious activity which they see to the cyber cell or via the I4C helpline 1930.