Stock tip scam via social media: SEBI conducts search and seizure

Continuing its crackdown against entities allegedly involved in a front-running scam using messaging app Telegram, Sebi on Thursday carried out search and seizure operations at the premises of eight entities in multiple locations across the country.

These entities are reportedly operating nine Telegram channels with more than five million subscribers to whom they were making recommendations on selected listed scrips. Such recommendations induced the investors to deal in the said scrips, thereby creating artificial volume and price rise.

This provided opportunity to their linked entities to offload their shares at higher prices and make significant profits at the cost of unsuspecting retail investors.

In a statement, the regulator said the search and seizure operation was carried out against seven individuals and one corporate entity at multiple locations in Ahmedabad and Bhavnagar in Gujarat, Neemuch in Madhya Pradesh, Delhi, and Mumbai.

During the operations, Sebi officials seized various records and documents, including 34 mobile phones, six laptops, four desktops, four tablets, two hard drive disks and one pen drive from the custody of these persons.

Sebi said data, emails and other documents are being retrieved from the seized devices and detailed investigation is in progress.

The regulator took order for the search and seizure operation from Judge Purushottam B Jadhav, Sebi Special Judge / Additional Sessions Judge.

The regulator said it had received information that messages containing stock tips and other investment advice with respect to selected listed companies are being widely circulated through websites and social media platforms such as Telegram, Facebook, WhatsApp and Instagram.

Perpetrators of such fraud use various marketing techniques to attract subscribers on their social media channels.

In December 2021, Sebi officials had conducted a search and seizure operation at the premises of certain persons carrying out similar manipulative activities through Telegram channels.

Following this, Sebi, in an order passed in January 2022, established that the administrators of a Telegram channel having a large subscriber base enticed the subscribers to act upon recommendations that were circulated by those administrators on the channel, leading to significant price and volume impact in various scrips.

These administrators had built substantial positions in these scrips prior to the circulation of recommendations and offloaded their positions subsequent to rise in price of these scrips, making significant profits at the expense of unsuspecting investors, Sebi noted.

In view of this, the regulator has cautioned investors not to rely on such investment tips / advice received through social media platforms. It has also said investors should exercise utmost caution while taking investment decisions while dealing in the securities market.

The regulator said it has been undertaking several campaigns to educate the investors to be vigilant while taking investment decisions based on stock tips.

In the past, it was noticed that through bulk SMSes, investors were induced to invest in or purchase the stocks of certain listed companies.

In this regard, Sebi collaborated with the Telecom Regulatory Authority of India (TRAI) to reduce the vulnerability of the securities market to manipulation through misuse of mass communication medium like bulk SMS.

However, the perpetrators of such frauds are now adopting new methods and technologies to defraud the investors.

Under the Sebi Act, the regulator has the power to carry out search and seizure of books, registers, documents including electronics and digital devices from any person associated with the securities market.

The Securities and Exchange Board of India (Sebi) had carried out a similar exercise in 2017 in a matter related to circulation of messages through WhatsApp.