Sebi Crackdown: How YouTube Was Used To Manipulate Stock Prices, Prey On Investors

The Securities and Exchange Board of India (Sebi) has come out with an interim order in a matter pertaining to stock recommendation using YouTube videos in the scrips of Sadhna Broadcast Limited and Sharpline Broadcast Limited.

The market regulator has issued an interim ex parte order under sections 11(1), 11(4) and 11B (1) of the Securities and Exchange Board of India Act, 1992 against 31 people in the Sadhna Broadcast Limited case and against 24 people in the Sharpline Broadcast Limited case.

The Complaint

Sebi had received complaints of price manipulation and offloading of shares by certain entities in the scrip of Sadhna Broadcast Limited. The complaints alleged that misleading YouTube videos with false content, backed by paid marketing campaign worth crores of rupees for additional reach, were being uploaded to lure investors.  

Once these unsuspecting investors entered the scrip, the said entities allegedly offloaded their holding at an inflated price.  

The modus operandi for Sharpline was the same.

On the basis of the complaints, Sebi conducted a preliminary examination in both the cases.

Sadhna And Sharpline  

Sebi found a spurt in the price and volume of scrip of Sadhna between April 2022 and mid-July 2022 and the same in the scrip of Sharpline between April 2022 and mid-May 2022.  

Investigations revealed that a significant portion of the volume during this period was the result of the trades executed by some of those who have been sent notices in the case by Sebi.

In the case of Sadhna, false and misleading videos were uploaded on two YouTube channels namely, “The Advisor” and “Moneywise” during the second half of July 2022. As on February 20, 2023, ‘The Advisor’ had 8.24 lakh subscribers and ‘Moneywise’ had 7.68 lakh subscriber. The two channels were created on July 26, 2021, Sebi said in its notice.

In the case of Sharpline, these false and misleading YouTube videos about the company were uploaded on two YouTube channels, namely, “Midcap calls” and “Profit Yatra”. ‘Midcap calls’ was created on January 23, 2022 and ‘Profit Yatra’ was created on September 25, 2021. As on December 14, 2022, ‘Midcap Calls’ had 4.29 lakh subscribers and ‘Profit Yatra’ had 3.35 lakh subscribers, Sebi added.

Incidentally, none of the four YouTube channels had any description about the channels or its creators on their home page.

According to Sebi, these YouTube videos peddled false and misleading news to recommend that investors should buy the Sadhna and/or Sharpline stock for extraordinary profits.  

Subsequent to the release of the misleading YouTube videos, there was an increase in the price and trading volume of the Sadhna and Sharpline scrips.  

“The volumes appear to have been contributed by large number of retail investors likely influenced by the misleading YouTube videos,” Sebi said.  

Findings further revealed that in both these companies, certain promoter shareholders, key management personnel, and non-promoter shareholders, who held more than 1 per cent of shareholding, offloaded a significant part of their holdings at inflated prices and booked profits.  

The YouTube Channels

Apparently, the YouTube channels allowed only one-way communication from the creators of the channel who uploaded videos or posted messages. Viewers could only view the videos or messages and could not post any comments on the videos uploaded on the said channels.

Sebi got in touch with Google to verify the identity of the administrator and/or creator of these channels.  

The mobile numbers of the creators/administrators of YouTube channels, The Advisor and Moneywise, were found to be registered in the name of one Manish Mishra. In the case of the other two channels, there was another person by the name of Manjari Tiwari besides Manish Mishra.

Sebi also found multiple debit transactions in the bank account statement of Manish Mishra for the period January 2022 to September 2022 amounting to Rs. 4.72 crore to Google for targeted ads for promoting videos uploaded on YouTube. Other payments of Rs 64.99 lakh and Rs 1.17 crore were also discovered for the same purpose.

False And Hollow Claims On Videos

According to Sebi, the videos made big claims to lure investors.

Some of these claims were:  

• § The company has 5G license.  

• § Sadhna Broadcast Limited is going to be taken over by Adani group.  The margins of the company will increase after the deal.

• § The company is moving from TV production to movie production.

• § A big American corporation has entered into a contract for Rs. 1,100 crore to produce four devotional movies where the money will be brought in by the American investor, but the rights will remain with SBL.

• § Big mutual funds have already bought the stock.

• § The promoter shareholding has been increasing.

• § The technical indicators like relative strength index (RSI) and moving average convergence/divergence (MACD) suggest that the price of the company is very bullish mode and the target price is Rs 76 in three months and Rs 340 in one year.

• § The company is debt free, the fundamentals of the company are strong and the net profit of the company has increased substantially.

• § For Sharpline, they additionally said, it was a sister company of Sadhna Broadcast Limited.

• § The company has license to create OTT platform.

• § It has also signed big contracts with Sony Pictures and Zee to create four big films and nine Web series.  The company will earn approximately Rs. 250 crore from this deal.  

• § In the said deal, the investment will be done by Sony and Zee, but the content rights are with Sharpline Broadcast Ltd.  Therefore, there is no risk to the company but will have stake in profits.

• § (Sharpline) has already given good returns. Just six months ago, the price was Rs. 6 and now the price is around Rs. 30.

• § The current price of the share is Rs. 30 and it will become Rs. 240 within the next three months and Rs. 750 within the next one year.  

Apparently, the Bombay Stock Exchange (BSE) also sought clarification from the two companies with reference to the information being circulated on social media.  

Both companies refuted the claims made in the videos, and the same was announced on the BSE website on June 10, 2022, and July 18, 2022 for Sharpline and Sadhna, respectively.   

Sebi further observed that even as of February 20, 2023, the YouTube Channels had one video recommending the same stocks.  

Sebi said that considering the alleged illegal conduct in the extant matter, there was a high probability that the creators of the YouTube channels might execute the same modus operandi vis-à-vis other scrips also.

Order

Sebi has now instructed all those served with the notice to restrain from buying, selling or dealing in securities either directly or indirectly, in any manner whatsoever until further orders.    

It has also directed them to close out and/or square off any open position in exchange-traded derivative contracts, if they have any, as on the date of this order, within three months from the date of this order or at the expiry of such contracts, whichever is earlier.  

Sebi has also directed them to pay-in and pay-out obligations in respect of transactions, if any, which have taken place before the close of trading on the date of this order.

Further, all the proceeds in the bank accounts of those who have been served with notices will be impounded to their extent of their liability in the case, Sebi said.

They will also have to open an escrow account with a scheduled commercial bank and deposit the impounded amount mentioned therein within 15 days from the date of service of this order. The escrow account/s shall be an interest bearing escrow account and a lien shall be created in favour of Sebi. Further, the monies kept therein shall not be released without permission from Sebi.

In addition, Sebi has also directed them not to dispose of or alienate any assets, whether movable or immovable, or create any interest or charge on any of such assets held in their name, jointly or severally, including money lying in bank accounts except with the prior permission of Sebi, until the impounded amount is deposited in the escrow account.  

They will also have to provide a full inventory of all assets or investments held in their name, jointly or severally, whether movable or immovable, including details of all bank accounts, demat accounts and mutual fund investments, or any interest or charge on any of such assets, immediately, but not later than 15 days from the date of receipt of this order.  

Sebi has further directed depositories to ensure that no credits or debits are made in the demat accounts of those served with the notice, held individually or jointly, till further notice.

“The registrar and transfer agents are also directed to ensure that till further directions, the securities / mutual funds units held in the name of the noticees, individually or jointly, are not transferred / redeemed,” Sebi said in its notice.