I. Introduction
1. In this Finsec Case Digest, we analyze the the Securities and Exchange Board of India (“SEBI”)’s final order in the matter of Sadhna Broadcast Limited (“Order”). SEBI passed the Order, under Sections 11(1), 11(4), and 11B of the SEBI Act, 1992, against 64 noticees for manipulating Sadhna Broadcast Limited (“Company”)’s stock prices through misleading YouTube videos and coordinated trading. The scheme involved inflating stock prices, disseminating false information to attract retail investors, and offloading promoter shares at inflated prices, resulting in significant financial harm to unsuspecting retail investors.
II. Facts of the Order
2. The matter originated from multiple complaints submitted to SEBI between July and September 2022. These complaints pointed out that certain YouTube videos had gone viral, falsely presenting the Company as a turnaround company. The videos claimed that the company was being acquired by the Adani Group, had acquired a 5G license, or had signed a ₹1,100 crore film deal, among other positive claims to lure investors. The content gave exaggerated price targets for the stock, promising substantial returns. These videos were promoted through paid campaigns, reaching millions of retail investors.
3. Following these promotions, the stock witnessed a massive rise in price and trading volumes. SEBI’s investigation revealed that this activity coincided with the sale of shares by individuals connected to the company’s promoter group, who earned them substantial profits through these sales.
4. Thereafter, for further examination, SEBI conducted an investigation covering the period from March 8, 2022, to November 30, 2022. An ex-parte interim order was passed against 31 entities in March 2023, restraining them from buying, selling, or dealing with securities. Additionally, the interim order also impounded the profits made by the noticees through the fraudulent trades. Subsequently, a show cause notice (“SCN”) dated January 09, 2024 was also issued to 64 noticees calling on them to explain why suitable directions under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of the SEBI Act, 1992 should not be issued against them for the violations alleged therein. The SCN laid out allegations of misleading investors through false and promotional content, engaging in structured and fraudulent trading, and violating provisions of the SEBI Act, 1992, and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (“PFUTP Regulations”).
5. SEBI conducted search-and-seizure operations at 15 locations, recovering digital and documentary evidence. Evidence ranging from emails, bank statements and WhatsApp chats was collected and analysed. This evidence was further corroborated by the statements of various noticees.
III. Arguments advanced by various noticees.
6. The noticees contended that SEBI had denied them inspection of documents and an opportunity to cross-examine witnesses. They also questioned the admissibility of electronic records such as WhatsApp chats and digital evidence retrieved during search and seizure operations undertaken earlier.
7. On the substantive issues, the noticees argued that their trades were independent and unrelated to any manipulation. Noticees who were members of the promoter group of the Company denied acting in concert or under anyone’s instructions, asserting that they traded in their own accounts.
8. Entities linked with the YouTube content said they were not involved in promoting any false claims. Some noticees claimed that they were unaware of stock market operations and had been misled by one noticee, namely, Mr. Manish Mishra. Others said they had incurred losses and thus should not be penalised. Few noticees also expressed confusion about how their trading records had been accessed and contested the relevance of WhatsApp chats allegedly involving them.
9. Noticees who were directors of certain noticees named in the Order contended that they had been named only due to their managerial positions and were not personally involved in trading.
IV. SEBI’s findings on key allegations
a) Operation of a pump-and-dump scheme through misleading YouTube videos:
10. SEBI noted that certain noticees were found to be operating YouTube channels like The Advisor, Moneywise, Profit Yatra, etc., through which false and misleading videos were disseminated. These videos garnered massive viewership (some over 90 lakh views) and were promoted via Google Ads, funded with over Rs. 5.8 crore by the noticees.
b) Modus Operandi of the noticees:
11. SEBI observed that a carefully structured scheme was executed in two phases. In the first phase, connected and promoter-linked entities executed structured trades among themselves to steadily inflate the price of the scrip of the Company and create a false appearance of market interest. These trades, though often small in volume, had a disproportionate impact on price due to low liquidity, allowing the perpetrators to push the scrip upward with relatively minimal trading outlay.
12. Once the price had been sufficiently elevated, the second phase of the scheme was activated. Misleading and promotional videos were disseminated across YouTube channels operated by certain noticees. These videos presented the Company as a promising investment opportunity and were timed to coincide with and amplify artificial market activity. The retail investor segment, drawn in by this coordinated push and the misleading perception of active demand, provided the exit liquidity the promoters needed.
c) Offloading of Promoter Shares at Inflated Prices:
13. Promoter group entities and connected persons used the inflated price to offload their holdings to retail investors. Major sellers collectively offloaded over 1.61 crore shares valued at Rs. 32.86 crore during just one phase.
d) Use of Proxy Accounts and Identities:
14. Multiple YouTube and Google accounts were created using identity documents of third parties but operated by certain noticees.
e) Retail Investor Impact:
15. The orchestrated manipulation led to a surge in retail investor participation, resulting in financial losses to the public once the price collapsed after connected entities exited.
f) Penalties imposed:
16. In view of the above reasoning, SEBI held that the noticees had violated the provisions of Section 12A(a), (b), and (c) of the SEBI Act, 1992 and Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(a), (d) and (e) of the PFUTP Regulations.
17. In determining the penalties, SEBI relied on Section 15HA of the SEBI Act, allowing for significant monetary penalties for fraudulent and unfair trade practices, and was guided by the factors under Section 15J, including the quantum of disproportionate gains, the extent of investor harm, and the repetitive nature of the misconduct.
18. In its reasoning, SEBI noted that the fraudulent scheme was premeditated, involved significant monetary transactions, and resulted in widespread harm to retail investors, eroding investor trust and market integrity. The penalties, both monetary and restraining, were crafted to serve as a deterrent against similar manipulative practices, particularly those leveraging social media and digital advertising to mislead investors.
19. SEBI directed that the Noticees be restrained from accessing the securities market and ordered them to disgorge illegal profits, jointly and severally, where applicable. Monetary penalties under Section 15HA of the SEBI Act were imposed, depending on the level of involvement and gains made. The SEBI also directed the banks and depositories to freeze accounts and assist in the recovery of penalties and disgorged amounts.
V. Impact and Broader Implications
a) Harm to Retail Investors:
20. The primary victims were unsuspecting retail investors. Attracted by the misleading videos and artificial price surge, a vast number of new investors entered the SBL scrip. The number of public shareholders in SBL increased dramatically from 885 to 72,509 during the manipulation period. These investors were left holding shares at grossly inflated prices when the manipulators exited, leading to substantial financial losses as the stock price subsequently collapsed. The share price plummeted from a peak of over Rs. 33 to around Rs. 2.60 post-manipulation.
b) Market Integrity and Investor Trust:
21. Such pump and dump schemes, as SEBI noted, strike “at the very heart of market integrity”. They undermine the trust of genuine investors in the fairness and transparency of the securities market, creating an environment of suspicion and deterring participation. The fact that company promoters were orchestrating the scheme to offload their own shares (reducing their stake from 40.95% to 25.58%) while luring in the public is a severe breach of fiduciary duty and corporate governance norms. The subsequent change in the Company's name was viewed by SEBI as an attempt to obscure this tainted legacy.
c) Regulatory Response and Deterrence:
22. SEBI's decisive action, including imposing significant monetary penalties (ranging up to ₹5 Crore for key individuals), ordering disgorgement of ill-got gains with 12% interest, and barring numerous entities from the securities market for periods ranging from one to five years, sends a strong deterrent message. The joint and several liability imposed on key conspirators for disgorgement aims to ensure effective recovery of illicit profits.
d) Digital Age Challenges:
23. This case underscores the evolving challenges for regulators in an era where financial information (and misinformation) can be disseminated rapidly and widely through digital channels. The order serves as a crucial reminder for investors to exercise extreme caution and conduct thorough due diligence, especially when relying on social media or "finfluencers" for investment advice.
VI. Conclusion
24. The Order stands out for its extensive use of YouTube-based market manipulation and the coordinated abuse of trading mechanisms, highlighting SEBI’s increasing scrutiny of digital platforms in the securities market and its firm resolve to protect retail investors through stringent enforcement actions. There is also a need for greater responsibility from these platforms, such that their algorithms and monetisation models should not inadvertently amplify manipulative content.
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