🚫 SEBI Stops Social Media Stocks Scam
Social media has become a space where anyone can make a quick buck by giving you "investment advice." But SEBI's trying to put an end to such advice scams.
Investing in the stock market can be difficult.
You need to understand the pulse of the market, be up to date with the latest industry news, and do a lot of research.
In short, it's a lot of work.
And sometimes, despite all this work your investment fails or does not pay off much.
This is why some people start looking for shortcuts.
And what's the easiest shortcut? Taking investment advice from experts.
Not only is this easy, investors think this is also safe. Afterall, these experts are so knowledgeable, no? Add to it the dreams of getting rich quickly.
But in today's social media-ruled world, anybody who has managed to gain a huge following automatically becomes an expert.
However, SEBI has had enough of this. It recently banned six such "experts" from trading on the stock market and imposed a fine of Rs. 2.84 crores on them. Want to know the details of their crime? ReadOn!
Social Media= Investment Advice Platform
The pandemic changed our lives in many ways, mostly for the worst. But there is one positive change that it has brought.
More Indians, especially young Indians, got interested in stocks trading.
Almost 20 million more trading accounts were created in just the last two years. That's more than half of the 31 million accounts that existed up until 2019.
Now, these new traders began looking for investment tips and tricks online. And this led to a boom in WhatsApp groups and Telegram channels giving "investment advice."
What the admins of these groups essentially do is pose as SEBI-registered research analysts and then suggest stocks. That's it. There is no actual advice involved.
But since this seems like an easy and a quick way to make money, their followers listen. They buy the stock in hordes.
However, the admins are not fools. They don't suggest any random stock to their followers. They suggest stocks that they have already bought in bulk.
And when thousands of their followers rush to buy it, the price of the stock obviously goes up.
Now, this serves two purposes.
First, the followers feel that the admins are geniuses. They said the stock price would go up and it did.
Second, the stock that these admins had bought dirt cheap becomes extremely valuable. So, they dump it and earn hordes of cash.
This kind of a scheme is called price rigging or a pump and dump scheme. And this is obviously not legal.
Which is why SEBI has decided to penalize the six people associated with the “Bull Run Investment Educational Channel” Telegram channel and the "Stock Gujrati 3" WhatsApp group.
Here's what the SEBI had to say about the group:
"The texts of the messages being circulated... the recommendations about the specific scrips were being made in a very ingenious manner so as to create a "Fear Of Missing Out" amongst the subscribers."
Yeah, SEBI knows what FOMO is!
The Telegram channel alone had 51,980 subscribers as of December 14, 2021, up from 35,016 subscribers in July 2021.
Imagine how much these many people could influence a stock's price and trading volume!
Well, actually you don't have to. Because SEBI's done the research for you:
Here’s how much the profit they made:
Now, imagine there are hundreds if not thousands of such channels that are still in circulation and running such scams. But SEBI only looks into them when official complaints are made.
So, why is SEBI not taking serious proactive action against these scammers?
Well, it tried to. You see, these scams may have become more popular now (accounting for 43.6% of all complaints made to SEBI last year) but they have been going on for a long time.
Almost ever since SMSes and emails become popular in the country.
So, in 2017 SEBI had considered banning any and all stock trading tips from being shared via social media or communications platforms.
However, this didn't go down well with a lot of people who swiftly began trolling SEBI for the move. So, it did not go through with the step.
Then what can SEBI do to stop these scams?
The first step needs to be education. The regulator should begin programs to educate people about how the stock market works. This would stop people from relying on fake experts or random social media advice.
Secondly, the SEBI should make the process of filing complaints easier. Right now, many people who have been a victim of these scams cannot warn the regulator or others about these fraudsters because making SEBI complaints is a task. SEBI could make this process simpler by having registered social media accounts where people could simply forward such problematic advice.
However, we must mention that SEBI is taking some steps to tackle such fraudsters. It has created a search and seizure team to tackle and raid the offices of such fake "experts" but it hasn't seen much success yet.
Don’t you think users also should be a little wary about where they get their advice from?
P.S. If you want to read SEBI's entire report on this scam, you can check it out here.
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