The Securities and Exchange Commission of Pakistan (SECP) on Monday announced it had arrested a “self-styled stock market guru” who influenced public sentiment through social media and earned millions of rupees through a so-called ‘pump and dump’ scheme.
“In the wake of a sophisticated surveillance operation and a detailed investigation, the SECP has been able to unearth and act against a financial cybercrime. A self-styled stock market guru who gave self-serving investment tips to the public on Facebook has been caught red handed by the SECP,” the commission claimed in a press statement.
“Behaving like stock market gurus and making suggestions about investments are illegal. This is a form of manipulation called inducement, which is a crime under the Securities Act 2015,” an SECP official had announced late last month.
SECP Spokesperson Shakil Chaudhary confirmed the arrest and said more arrests will be made in coming days in similar cases.
The SECP’s statement also shed light on the strategy of the accused: “His method of defrauding small investors was through a pump and dump strategy. He would buy a large quantity of shares of the company and then tell his Facebook followers that the financial prospects of the company had greatly improved. When his social media followers rushed to buy the stock, he would sell his own holdings.”
Pump and dump schemes usually entail an influential investor inflating the prospects of their investments in a bid to lure more people to invest their money in the same stocks. When stock prices rise as a result of the climbing demand, the manipulator dumps their stocks at the higher prices, walking away with a profit.
The accused in this case had replicated his strategy numerous times. This criminal conduct earned him an illegal profit of Rs58 million within six months, the SECP said.
The SECP, through two letters to FIA, has also forwarded lists of 32 and 42 illegal operators, the statement said. The FIA is currently investigating these names and will be taking the requisite action in due course, the regulator disclosed on Monday.
The SECP, in its endeavour to combat financial fraud, including financial cybercrime, says it is spearheading an initiative aimed at the formation of a high-level financial cyber-crime prevention committee comprising heads of SECP, State Bank of Pakistan, the Federal Investigation Agency and the National Accountability Bureau to take proactive and broad-based enforcement action against financial criminals.
The collaborative effort of financial sector regulators and law enforcement agencies is now widely prevalent in a number of global jurisdictions, and has been successful in the fight, the SECP claims.
The SECP has also reached out to the state-run National Bank of Pakistan to use its branch network to identify illegal operators all over the country. It has also set up a dedicated hotline and email service for the reporting of fraudulent activities and has decided to form a dedicated team for investigating financial cybercrimes.
To contain market manipulation, the SECP says it has filed seven criminal complaints in the current year against market abuses and two criminal complaints against senior employees of two banks for being involved in booking profits through insider trading.
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