Imagine a stock hitting the upper circuit (5-10%) every day—tempting, right? As a trader, you see a golden opportunity to multiply your money quickly.
But what if this dream trade turns into a nightmare? What if the stock suddenly crashes, leaving you with huge losses and no way out?
This is exactly what happened with LS Industries. The stock price of the company went from ₹22.50 to ₹267.50 in just two months.
Later, promoter exited their positions resulting in the downfall of the price by 84%.
What seemed like an unstoppable rally turned out to be a well-planned pump-and-dump scam.
This brings into the picture another case where retail investors lost crores while insiders walked away rich.
SEBI has stepped in, uncovering shocking details about this market trap!
Here’s everything you need to know to protect yourself from such scams.
SEBI’s Investigation: How the Scam Was Uncovered
It all started after July 2024 when the company got a green signal for trading after 11 long years. Earlier in December 2013, the panel suspended the company from trading.
Immediately after the suspension was revoked the company hit the upper circuit in the range of 5% to 10% every day. This increased the share price from ₹22.50 to ₹267.50 in just 2 months.
It didn’t end here, post September 27, 2024, after an increase in share price by 1089% share prices started falling and reached to ₹42.39 on Nov 21, 2024.
This indicated that promoters and insiders artificially inflated LSIL’s price using coordinated trading strategies.
And as always, once retail investors jumped in, manipulators dumped their shares, crashing the stock.
This continued till December 2024 when the share price increased by 223% again and reached ₹136.87.
Pump-and-Dump Explained: How Investors Got Trapped
SEBI noticed unusual trading patterns and launched a deeper investigation. As per the recent closing share price of the company on Feb 10, 2025, its market capitalization is around ₹5,760 crores.
However, the financial statement displayed a completely different picture.
As per the income statement, the company reported zero revenue in the last three financial years i.e. from FY 2022 to FY 24. Also the quarterly report of the company released on June 2024, Sept 2024, and Dec 2024 there is no revenue earned by the company.
Further balance sheet displayed a huge amount of trade receivables and debtor days which increased from 118 days in FY 11 to 58,416 in FY 24.
This depicted that the company was not doing any business during this period. Despite all this company’s market capitalization as of Sept 27, 2024, was ₹22,700
This raised a critical question—if the company wasn’t making money, why was its market cap growing?
SEBI then checked some of the recent announcements made by the company, which are as follows:
LSIL announced a shift into AI, robotics, and hydroponic farming to create hype.
The company made another announcement that it had acquired 75% of Robochef India Pvt. Ltd.. However the actual investigation revealed that Robochef is a startup with no actual revenue.
Now, looking at dates all these announcements were made in Nov & Dec but the share hit its all-time high by Sept 27, 2024. Thus, that spike in share price was not because of any financial result or growth announcements.
Further investigation of SEBI uncovered that:
- A former director of LSIL transferred a 12.12% stake (worth ₹10.28 crore) for just $1 (₹75) to an NRI based in Dubai.
- This NRI later sold shares during price spikes, making massive profits.
- SEBI suspects violations of FEMA (Foreign Exchange Management Act) and potential money laundering.
This price manipulation came into the picture now but was planned in the year 2022 went the company’s director sold his 10.28 shares for just ₹75 to a person living in Dubai.
That NRI then waited for the right opportunity and sold the shares when the price spiked and touched ₹267.50 and sold shares worth ₹1.14 crore and transferred ₹70.91 lakh to Dubai.
This NRI and other companies involved in artificial inflation of stock prices were found to be connected with LS industries directly or indirectly.
Now the money that promoters and other involved people made belongs to none other than retail traders who just looked at the growing price of the company and didn’t consider checking the financials and background of the company.
This is depicted by the number of public shareholders which rose from 3,892 (June 2024) to 6,106 (December 2024).
So, would it be right to say that retail traders are sufferers?
Not actually!
If they had shown little responsibility towards their hard-earned money and analyzed the company’s financials at least they could have been able to spot the manipulation and protect themselves from falling victim to this pump-and-dump scheme.
SEBI’s Legal Action and Investor Impact
SEBI came across this manipulation through one of the articles published on NDTV profits.
Without wasting time and to prevent further harm, SEBI took immediate action and passed an order against the company and promoters involved in stock manipulation.
- Trading Ban on key individuals & LSIL promoters.
- Bank & Demat Account Freezes to prevent illicit fund transfers.
- Investigation into suspicious transactions and FEMA violations.
- Warning to retail investors about stock scams.
Lessons for Investors: How to Identify Stock Market Frauds
This case highlights the importance of doing proper analysis and knowing about the company before making trading or investment decisions.
Here are some of the important lessons for retail investors:
- Check a company’s financials before investing. Zero revenue, no business, but a skyrocketing stock price is the major signal that one must not avoid.
- Double-check the company’s data that suddenly rebrands into “hot” sectors like AI, blockchain, or robotics without real revenue.
- Avoid stocks that continuously hit upper/lower circuits, this is the biggest red flag and often signals artificial price control.
- Watch for insider transactions and check if promoters or connected people are selling while hyping the stock, it’s a warning.
- Don’t chase “multibagger” stocks blindly, unrealistic gains are usually unsustainable.
Online frauds, stock manipulations, fake advisories, number of scams in the stock market are growing drastically.
It is therefore important for every individual entering the stock market to be careful, do proper research, and protect themselves from the trap of greed.
However, in case, you have been a victim of any of such scams or frauds and wondering how to report online frauds in India, feel free to reach out to us and our team will assist you in filing a complaint and taking relevant actions.
