Pump-and-dump operations: SEBI bans 221 entities for 7 years; Hanif Sheikh imposed a fine of 10 crores

Markets regulator Sebi has barred 221 entities, including individual investor Hanif Shaikh, from the securities market for seven years and fined Rs 10,000 for large-scale pump-and-dump operations in five stocks between 2017 and 2020. 10 crore fine has been collected.

Maurya Udyog Ltd, 7NR Retail, Darjeeling Ropeway Company, GBL Industries and Vishal Fabrics Ltd were manipulated by Shaikh — the alleged masterminds in the case — and their carrying entities, the Securities and Exchange Board of India (Sebi) said in an order passed on Tuesday.

In its 394-page final order, Sebi found that Shaikh had hatched a fraudulent scheme involving over 200 partnerships to ostensibly separate but intricately linked entities called ‘PV influencers’, ‘collaborators’ or ‘offloaders’ to transfer illegal benefits to his promoters or promoters of companies controlled by him.

According to SEBI, the entities artificially inflated prices and trading volumes through synchronized trades, transmitted bulk SMS recommendations to lure unsuspecting investors and later offloaded at elevated prices.

The proceeds were routed through multiple conduit entities to conceal the ultimate beneficiaries, the regulator said.

Sebi’s Whole Time Member Amarjit Singh said in the order, “The matter exposed a fraudulent scheme, though not novel or unprecedented in its conception, was executed meticulously and almost on an industrial scale, involving 226 companies playing their designated roles in five different scripts.”

Singh added that the investigation revealed a labyrinthine structure of fund transfers, apparently designed to obscure the identity of the ultimate beneficiaries.

“These features give the scheme a distinctly egregious dimension, taking it beyond the realm of routine market misconduct and into the realm of undermining investor confidence in the integrity of the securities market,” he said.

SEBI noted that the companies through this scheme totaled Rs. 143.79 crores was obtained as an illegal benefit.

Accordingly, the market watchdog barred Hanif Shaikh from entering the securities market for seven years and Rs. 10 crore fine was imposed. Five entities associated with Sheikh have been banned for six years and fined Rs 2 crore each.

The regulator also banned other notices for a period of up to five years and levied a fine ranging from Rs 5 lakh to Rs 1 crore.

Further, SEBI has issued notices from October 21, 2020 till the date of payment of such default by the (entity) with interest at 12 per cent per annum calculated on Rs. 143.79 crore was ordered to be released.

Sebi, through an interim order-cum-show-cause notice passed in June 2023, banned Hanif Shaikh and 225 other entities.

Five companies for involvement in scheme to manipulate price and volume of scrips Rs. He was also directed by the market watchdog to forfeit alleged illegal gains of Rs 143.79 crore.