Buy this stock; sell that one. Many social media platforms have groups where stock or mutual fund recommendations are the regular fare. The market regulator has cracked its whip on such illegal activities because any entity that is not registered with the Securities and Exchange Board of India (Sebi) is not allowed to give stock or mutual fund advice, which includes recommendations.
On Wednesday, Sebi cracked down on a stock recommendation scam being conducted on social media applications such as Telegram and Twitter and imposed a fine of Rs 2.84 crore on six individuals involved in the scam.
The market regulator mentioned in its order that these six individuals did not have any registration with Sebi to function in the securities markets as an intermediary but were using social media platforms such as Telegram and Twitter to artificially influence stock prices, to make illegal profits.
In addition, the regulator has banned these six individuals from buying, selling or dealing in securities, either directly or indirectly, until it comes up with further orders related to this scam. These individuals have received an interim order and a show-cause notice under the Securities and Exchange Board of India Act, 1992; Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003; and Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995.
During its investigation, Sebi found that the six accused conducted their activities through a Telegram channel called Intraday Calls-Bull Run Investment Educational Channel, which had 52,000 subscribers as on December 14, 2021.
Sebi mentioned in its order that with growing technological advancement, such scams have been rising. According to Rajesh Keswani, director of public markets at o3 Securities, a capital syndication advice firm, the most important aspect is to increase awareness and ensure that that advice is coming from a genuine source that is registered with Sebi. Here are five ways in which you can protect yourself from falling prey to stock advice from unregulated 'experts'.
1. Check Sebi Registration
Before following the guidance of any individual or group, investors should check if they are registered with Sebi or not. Do not follow any guidance from non-Sebi-registered entities in terms of investment.
2. Attend Investor Education Programmes
Sebi, along with various market participants like fund houses, financial planning firms, market investment and wealth management firms regularly carry out educational programmes for retail investors. Usually, these programmes are conducted free of cost. Educate yourself on the fundamentals before investing in any instrument. This will not only make you more aware but also give you the tools to spot bad and unauthorised advice.
3. Get Help From Industry Experts
Every year, many fund houses conduct live sessions with industry experts. Investors can join such sessions, which are usually conducted over a few days, to get better clarification from experts and interact directly with them. Such sessions have been happening virtually for the past two years.
4. Lodge Immediate Complaint
If any investor feels that he/she is not getting proper information related to investment or suspects that the advisor is not genuine, Sebi has various mechanisms where individuals can lodge complaints. The regulator also carries out constant surveillance to curb down such fraudulent activities.
5. Follow Genuine Advisors
Various market-related organisations such as the Association of Mutual Funds in India (Amfi) often publish advertisements with detailed guidance on investment. Following those can help investors and protect them from stock recommendation scams.
There are many self-styled market analysts or market experts peddling snake oil. Proceed only after checking if they are genuine and Sebi-registered.