In a series of tweets, Zerodha on Tuesday raised concerns over the ‘pump and dump’ scam, wherein operators who hold most of the shares, manipulate prices by spreading messages through SMS, social media, before dumping them once the prices are up.
Calling it one of the oldest scams in the stock market, Zerodha said SMS, Telegram and WhatsApp were the most popular channels to spread such stock tips for a long time.
“But of late, people with large followings on social media and YouTube are being paid to promote stocks through tweets and videos. In the last few months alone, there have been multiple instances that got media attention. But there are several that go unnoticed,” it said.
Zerodha said a lot of investors, unknowingly or driven by greed, fall for these tips.
“They jump in when they see a stock hitting upper circuits, but are stuck once the operators dump the stock. In pretty much all the cases, these stocks end up crashing 90 per cent-plus and become worthless,” it said.
Zerodha said there are thousands of Youtube channels about trading and investing.
“For every sensible channel, there are 100s that are downright scammy. Ironically, the scammy ones tend to have the most subscribers,” it said.
Sebi had in a release on March 10 had said it carried out search and seizure operations at the premises of seven individuals and one corporate entity at multiple locations. During the operations Sebi officials seized various records and documents. The entities were reportedly operating 9 telegram channels with more than 5 million subscribers.
“Such recommendations induced the investors to deal in the said scrips, thereby creating artificial volume and price rise. This provided an opportunity to their linked entities to off-load their shares at higher prices and make significant profits at the cost of unsuspecting retail investors,” Sebi said last month.
Sebi had conducted a similar search and seizure operation on December 1, 2021.
Zerodha said there are no easy ways to get rich quickly in the stock market. If something is too good to be true, it almost always is, it noted.
“Please don’t buy or sell based on random stock tips on Twitter, YouTube and WhatsApp. You’re investing your hard-earned money,” it said.
