WhatsApp stock tips: Nithin Kamath warns of more pump-and-dump schemes as ED freezes accounts worth Rs 200 crore

A pump-and-dump scheme is an alleged manipulation method. People connected with a stock promote it aggressively to create buying interest and push its price higher. They then sell shares after the price rises. The scheme matters because later buyers may be left with losses when the promotion ends and demand weakens.

In the case described, WhatsApp groups with names such as “Multibagger Stocks” allegedly circulated daily buy recommendations. Promotions also appeared on X, through SMS and other channels. The Enforcement Directorate said these campaigns increased the stock’s price and trading volume. Preferential allottees allegedly used that buying interest to sell part of their holdings to many investors.

The article says influencers and social media promoters can make such schemes appear credible. Kamath warned that these cases could become more frequent as the market cycle advances. Investors should question promises of easy returns and check whether a tip makes sense before buying.

The Enforcement Directorate is investigating alleged stock manipulation involving two listed companies. It suspects that shares issued through preferential allotments were promoted through coordinated campaigns. The alleged objective was to increase buying interest and prices, allowing some preferential allottees to sell part of their holdings to other investors.

The agency said much of the allotment money came from a small network of connected individuals, firms and lenders. It also linked the alleged promotion to WhatsApp groups, X, SMS and other channels. Groups reportedly circulated daily recommendations, causing significant increases in the stocks’ prices and trading volumes. The allottees allegedly took advantage of this interest and dumped shares.

Trading accounts holding shares worth around Rs 200 crore were frozen as part of the investigation. The action was taken under the Prevention of Money Laundering Act. The freeze preserves assets while investigators examine the alleged funding, share allotments, promotional activity and sales.

The investigation was broad in location and significant in the value of assets affected. The Enforcement Directorate said its Mumbai Zone searched 29 premises across six cities. The searches targeted people or entities connected with an alleged stock manipulation scheme involving two listed companies.

The six locations were Mumbai, Nashik, Ahmedabad, Gandhinagar, Surat and Bhavnagar. The agency conducted the searches under the Prevention of Money Laundering Act. Its investigation concerns alleged preferential allotments made between April 2023 and March 2024, followed by coordinated promotion and share sales.

Trading accounts holding shares worth around Rs 200 crore were frozen. This figure represents the approximate value of shares in the affected accounts, not necessarily proven losses. The article does not state how many investors were involved or the final outcome. The searches and account freezes show that the investigation remains focused on tracing funds, ownership and alleged manipulation.

A preferential allotment is a company’s issue of shares to selected investors or entities. It gives those recipients shares directly, rather than offering the same allotment broadly to all market participants. The article links such allotments to the alleged manipulation because the recipients’ holdings could later be promoted and sold.

The ED said the two companies made preferential allotments between April 2023 and March 2024. A substantial portion of the allotment funds allegedly came from connected individuals, firms and lenders. Investigators suspect that the newly acquired shares were promoted through WhatsApp groups and other channels. The campaigns allegedly increased prices and trading volumes.

After the promotional activity generated buying interest, preferential allottees allegedly sold part of their holdings to a large number of investors. That sequence could allow early holders to benefit from a higher market price while later buyers face the risk of a decline. The allegations remain under investigation, and the article does not report a final finding.

Retail investors can be harmed when coordinated promotions create a false impression of strong market interest. They may believe a stock is gaining because of genuine demand or valuable information. If the price has mainly been lifted by promotional activity, later buyers may enter at levels that cannot be sustained.

The article describes WhatsApp groups circulating daily buy recommendations for stocks. The ED said prices and trading volumes rose while the stocks were being promoted. Preferential allottees allegedly used this increased buying interest to dump part of their shareholding to many investors. Those investors could then hold shares bought at inflated prices.

When early holders sell and promotional messages stop producing new demand, the market may no longer support the higher price. Retail investors can therefore face losses, especially if they relied on promises of quick gains. Kamath urged investors to question easy-return messages and assess a stock tip before acting on it.

Investors can begin by questioning any message that promises easy or unusually quick returns. A credible tip should make sense beyond its promotional wording. Investors should consider what the company does, why the price might rise, and whether the information comes from a reliable source. The article specifically recommends checking a tip before acting.

Kamath suggested using AI tools such as Paradox or Axiom to assess whether a stock tip makes sense. An investor could ask the tool to explain the company, identify assumptions in the message and flag claims that sound unrealistic. This is a screening step, not a guarantee. The article also advises readers to make investment decisions based on their own assessment.

The warning is especially relevant for tips spread through WhatsApp groups, X, SMS or influencers. The ED investigation shows how coordinated promotion can raise prices and volumes. A basic credibility check may help investors avoid impulsive purchases, though the article does not promise that AI can detect every scheme.

A stock’s price reflects the balance between people willing to buy and those willing to sell. When buying demand increases, buyers may offer higher prices to obtain shares. Trading volume measures how many shares change hands, so rising volume often signals stronger market activity. Investor expectations also matter because beliefs about future performance influence willingness to buy or sell.

Artificial demand distorts this process by creating buying interest that may not reflect genuine confidence in the company. In the alleged scheme, WhatsApp groups circulated recommendations, while promotions also appeared on X, SMS and other channels. The ED said prices and volumes rose during the promotional period. Preferential allottees allegedly then sold shares into that demand.

This can mislead investors into treating promotion as proof of value. Once the campaign weakens, expectations may change and buying support may fall. Investors who purchased at the higher price can then face losses. The article warns that such cases could become more frequent as the market cycle advances, but gives no forecast of specific prices.