SEBI conducts search operations in social media stock tips scam. All you need to know

The Securities and Exchange Board of India (SEBI) is cracking down on social media influencers who dish out stock recommendations to retail investors, leading to an artificial increase in their trading volumes and price.  

On Thursday, the capital markets regulator raided and seized laptops, mobiles, tablets, desktops, hard disks, pen drives and other electronic devices at the premises of at least seven individuals and one company that were using Telegram channels to give out stock tips to their millions of subscribers. 

At which locations did SEBI conduct its raids?

SEBI raided raids in Ahmedabad and Bhavnagar in Gujarat, Neemuch in Madhya Pradesh and in Delhi and Mumbai, the regulator said in a statement. 

What did the stock market regulator actually find?

SEBI said it identified at least nine Telegram channels with more than five million subscribers, who were being given stock tips. SEBI believes such stock tips and recommendations led to artificial spikes in trade volume that would allow operators and punters linked with such stocks to sell their shares at a higher price, make gains and exit the bet by trapping small or retail investors.

“Such recommendations induced the investors to deal in the said scrips, thereby creating artificial volume and price rise. This provided an opportunity to their linked entities to offload their shares at higher prices and make significant profits at the cost of unsuspecting retail investors,” it said.

What has the regulator asked retail investors to do?

The regulator has asked investors to remain cautious and not rely on unsolicited investment tips received through platforms such as Telegram, WhatsApp, Instagram and Facebook.

When did SEBI begin investigating this case?

It began investigating this case after receiving information that some stock tips and recommendations with respect to select companies are being widely spread through multiple social media platforms.

“Perpetrators of such fraud use various marketing techniques to attract subscribers on their social media channels", SEBI said.

Is this the first stock tips scam the regulator has cracked?

Not really. Earlier, SEBI officials had conducted a search and seizure operation on December 1, 2021 in the premises of certain persons carrying out similar manipulative activities through Telegram channels. 

On January 12, the regulator had cracked down on a similar stock recommendation scam over social media, imposing a fine of Rs 2.84 crore on six individuals and barring them from accessing the stock market. According to SEBI, these individuals were giving unsolicited stock recommendations using social media channels to manipulate stock prices and make illegal profits.

SEBI has been undertaking several campaigns to educate investors to be vigilant while taking investment decisions based on stock tips. In the past, it was noticed that through bulk SMS, investors were induced to invest in or purchase the stocks of certain listed companies. 

Were any other agencies involved?

SEBI has collaborated with the Telecom Regulatory Authority of India in the past to reduce the menace of stock tips via text messages, but to little avail.