Stock tips, advice on social media under Sebi surveillance

Sebi has been taking measures to address the menace of circulation of unsolicited messages containing stock tips/investment advice with respect to listed companies on the social media platforms. Sebi carried out three search and seizure operations in FY22 to put a stop to fraudulent stock tips circulated through social media and ‘pump and dump’ schemes, according to its annual report for 2021-22.

Stock tips shared on Telegram and WhatsApp pages or groups to inflate share prices amount to a violation of Prohibition of Fraudulent and Unfair Trade Practices Regulations, 2003.

“Sebi is using various technological tools for analysing bulk digital data for data available on the web, like social media data and data from various news sources. The learnings on the basis of cases of manipulation identified are being augmented with technology to further strengthen the surveillance capabilities at Sebi,” the regulator said in its annual report.

Sebi, in consultation with the Telecom Regulatory Authority of India, has issued directions to ensure that investment advise/stock tips via SMS is sent only by Sebi-registered intermediaries through registered telemarketers. It has sought mechanisms to filter and block bulk SMSes with certain identified keywords such as buy, sell, hold, etc, followed by scrip code and name. Earlier this year, the regulator, for the first time, allowed investors to withdraw their bids for the Rs 4,300-crore FPO of Ruchi Soya because of misleading SMS circulated in violation of ICDR, 2018.

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“Sebi and the government are worried about the proliferation of stock market on social media channels. Many of these come from unregistered entities, with limited visibility on whether the account is authentic or fake. This has the potential to mislead consumers, and lead to ‘pump and dump’ and other similar schemes,” said Vikramjeet Singh, partner, BTG Legal.

Earlier this year, Sebi shut down a telegram channel, Bull Run, following an investigation involving seizure of mobile phones of the accused.

“The inherent anonymous nature of social media also means that it is difficult to trace originating individuals, and to do so requires a large investigation and enforcement team. In particular, where accounts originate outside of India, getting information about them is a challenge,” said Singh.

“Telegram allows creation of public channels wherein a large number of subscribers can be added without disclosing the identity of the persons behind such channels. Such channels essentially act as a message dissemination forum where only administrators are allowed to disseminate messages, the content of which is solely decided by them. The increase in the number of equity investors in the past two years has also increased chances of them being duped by fraudsters,” said Abhinay Sharma, managing partner, ASL Partners.

The number of demat accounts crossed the 100 million mark a few weeks ago.

The regulator may seek powers to intercept, de-crypt data on social media, by seeking authorisation under the Information Technology Act, 2000. It is also reportedly looking to develop web intelligence tools to monitor social media and has recently floated an expression of interest for the supply of a web intelligence tool for obtaining data from the web, likely with a view to gather unstructured publicly available data from the web including public websites, social media platforms and open-source databases.

“Investor awareness, effective enforcement mechanism, working with other regulators and private entities such as YouTube and Telegram could help prevent the menace of unsolicited advice on tips, especially by unregistered investment advisors. The regulator should leverage on AI and big data analytics to counter such threats,” said Sharma.

“Sebi needs to create a mechanism that allows investors to immediately complain about unwanted tips via a specific phone number or email. Sebi can create separate IDs for Twitter, Facebook and Whatsapp where investors can forward these unsolicited tips voluntarily and treat these forwards as complaints suo-moto,” said Anshul Gupta, managing partner, ANG Partners Advocates & Solicitors.