Pump and Dump Scheme - Explained



Recently on Twitter, a Company - Salasar Techno Engineering (NSE: SALASAR) went viral for all the wrong reasons. A screenshot of an agency reaching out to a Twitter influencer for promoting a tweet about Salasar techno engineering being a potential multi-bagger.

In this article, I will attempt to explain how this pump and dump scheme works.

Let's take an example - Person A starts XYZ company runs it diligently and takes to XXX amount of valuation. One day he decides to take the company public, up until now Person A (Promoter) holds shares in his company, but now he wants to get good returns on his stake in the company. After the IPO hits the market, he starts planting stories about how XYZ company bagged XXX amount of order, or, Analysts recommend buying this stock as it is a potential multi-bagger.

Now you hope that the public might take this as a sign of making a quick buck, but unfortunately, it doesn't happen.

Furthermore, you now start buying shares in big lots from multiple accounts, and this time when the public knows that there was news about XYZ company and it is showing the effect on share price given your buying, retail investors pour in their money taking the stock price further up.

As soon as you make a reasonable sum of money, you dump all of your shares, take the profit, and voila you made a hefty sum.

But, but, but... what if you want that "hefty sum" but don't want the hassle of creating the company, running it for years, and all that hard work?

Well, here is when you become an operator, befriend a founder of a small listed company, make them believe how you can skyrocket their share price, plant stories in media, and then repeat the above cycle.

And this is what the pump and dump scheme is, not the most legal way of making money but it is happening and it is rampant.

Now that you know what this is, let's take a look at what happened with Salasar Techno Engineering. It is a small NSE-listed company with an INR 700 crore valuation engaged in helping solar companies set up plants, telecom companies build towers, and other such stuff.

A media outlet published an article titled - Multibagger stock for 2022: Experts recommend buy on this telecom infra share.

A few days passed but no action, then suddenly few "Twitter influencers" started saying nice things about Salasar Techno Engineering, and then a person posted a screenshot saying how this PR agency reached out to him and told him to post a tweet.

Immediately after the persons who had posted nice things about the company started deleting their tweets. The company is now in the spotlight for possibly running a pump and dump scheme.

But you know the worst part? Sometimes promoters don't even know what is going on, it is the agency they hire that sometimes does this. Possibly to impress the promoters and also to make a quick buck.

Now I am not saying that every company who turned multi-bagger in the recent past has used such ways, or every other PR agency carries out these malicious schemes but it is happening and it is frequent.

We as retail investors should be cautious when suddenly an unknown company out of nowhere comes into the limelight. We should be able to separate such companies from the good ones.

Do let us know your thoughts on the above topic in the comment section and let a healthy conversation begin.

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Disclaimer

The above information is to spread financial literacy. We are not SEBI registered financial advisors, kindly consult your financial advisor before making any investment decision.


Sources

Weekly Wrapup - Don’t fall for the infamous Pump and Dump (finshots.in)


Multibagger stock for 2022: Experts recommend buy on this telecom infra share (livemint.com)

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