All About SEBI’s War on Stock Tips on Social Media

What did the regulator find?

This was a classic pump-and-dump scheme being run on the Telegram messaging service. Six individuals, four of whom claimed to be research analysts, ran a Telegram channel called BullRun2017 or BullRun Investment Education Channel. He bought shares of select small caps, recommended them to people on the Telegram channel, and once the stock went up, sold those shares. he has a clean pocket 9 lakhs by recommending multiple times to Total Transport Systems Ltd. As of December 2021, the channel had 50,000 subscribers.

What are the broader concerns?

Stock market manipulation is as old as trading. While trading has gone digital, there has also been rigging in stocks. Social media can be an effective tool for investors to research a particular stock. However, it can also be used by fraudsters to spread false or misleading information about a stock to a large number of people with minimal effort. Many social media influencers recommend stocks without a registered investment advisor. In many cases, these entities conceal their true identities by acting anonymously or by impersonating reliable sources of market information.

Is this the first such case of stock rigging?

In the past one year, SEBI has passed two orders against news anchors of Hindi business channel CNBC Awaaz for allegedly recommending small-cap shares to viewers in a pump-and-dump scheme. The regulator has also probed the leakage of financial results of Axis Bank Ltd., Bata India Ltd., HDFC Bank Ltd. and Tata Motors Ltd.

Can’t SEBI just act on them?

SEBI has been able to collaborate with Telecom Regulatory Authority of India to curb stock tips through bulk SMS. However, social media regulation is tough. In social media channels like YouTube and Twitter, entities can send bulk recommendations without registering with SEBI and anonymously. It is difficult to trace the ‘mastermind’ of a scheme as the messages are end-to-end encrypted. SEBI had filed a petition with WhatsApp to find out where such messages came from, but nothing much came out of it.

What is the way forward?

The order sets a precedent that the regulator is not only aware of such manipulation schemes but is also prepared to act with investigative tools at its disposal. This order does two things: it acts as a deterrent to such market manipulators, and it warns investors to beware of such channels and unsolicited market advice. It will always be difficult to crack down on all market manipulations. Educating investors to stay away from such channels, a practice initiated by the US SEC in 2015, is easy.