The Securities and Exchanges Board of India (SEBI), is cracking down on what it claims are “entities Engaged in unregistered Investment advisory and portfolio management activities” through SMS (or text messaging). SEBI has said that it has noticed that certain entities were offering intraday tips and stock advisory services to investors through Short Message Services (SMSs) via mobile phones. During the investigation, it obtained details of call data records (CDR’s) of numbers used for this messaging, and visited Imtiyaz Hanif Khanda. According to SEBI, it was observed that, via businesses called Right Trade, Sai Traders, Bull Trader and Laxmi Traders, were providing investment advice without being registered with SEBI.

Apparently, Right Trade, via its website www.righttrade.in had solicited business of portfolio management services from the general public without being registered as a portfolio manager with SEBI. It had also advertised via SMS, inviting clients to enroll for advisory services, and the website RightTrade.in had published information that it had offices in several countries, despite only having an office in Surat.

“The entities had also made misrepresentations by making unrealistic claims, false statements such as having office in various countries, FII based calls, jackpot calls, etc., and they also made representation in reckless and careless manner in their messages and website suggesting facts which are not true. By their acts and omissions they have prima-facie solicited, enticed and induced investors to deal in securities on the basis of their investment advices, stock trade tips, etc,” SEBI said in its report.

The entity has been debarred from buying, selling or dealing in the securities market, and have been directed to

“(a) to cease and desist from acting as an investment advisors and portfolio managers and not to solicit or undertake such activities or any other unregistered activity in the
securities market, directly or indirectly, in any manner whatsoever;
(b) immediately withdraw and remove all advertisements, representations, literatures, brochures, materials, publications, documents, websites, etc. in relation to their investment advisory and portfolio management activities or any unregistered activity in the securities market.”

At the time of filing this report, RightTrade.in was not operational.

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A few things interesting about this case: Firstly, that they were using SMS for promoting the services, and there is no way to control bulk messaging. Telecom operators and Bulk SMS companies do not take on any liability of the messaging, as they are merely intermediaries under law. The other thing that is interesting is that SEBI was able to locate the individuals using Call Data Records. Now this is the counter argument against the privacy issues related to the Central Monitoring System which India is launching, wherein, the government can get access to a citizen’s call data records. However, what if these services were operating on Whatsapp? That creates a tricky situation, because SEBI doesn’t have access to Whatsapp, and would have to rely on a consumer complaint for identifying the number from which the messages are being sent. Also, what if stock advise is taking place through something like GTalk, Twitter or Facebook? Or on closed online groups? The identity of individuals is even more difficult to establishe (in case of Whatsapp, the number is linked), and this poses a challenge for investigating agencies going forward.

In the past, SEBI has warned about the use of IM’s, emails, forums etc being used for communicating unauthenticated information related to companies.