The Securities and Exchange Board of India (SEBI) is once again looking to clamp down on fraudulent and unsolicited investment tips and offers made through SMSes, Whatsapp and other social media platforms, reports PTI. The regulator is looking to coordinate with the Reserve Bank of India (RBI) and the Telecom Regulatory Authority of India (TRAI) to do this more effectively. This is because SEBI depends on call and data usage records from telecom companies ( to obtain the numbers and URLs used by the perpetrators) and statements of financial transactions (for the account numbers) from banks to establish the identity of the perpetrators and investigate these cases.
The modus operandi of the fraudsters seems to be: first send out fake investment tips and offers through SMSes, instant messaging platforms like Whatsapp, and even social media platforms like Facebook and Twitter to lure investors, then give them a bank account number to deposit the investment money.
Investment advisers and market research analysts registered with SEBI are the only ones allowed to offer investment advise regarding the stock market or other financial instruments connected to the stock market (such as mutual funds).
The report mentions that in the past, SEBI has taken action against unregistered companies like MCX Biz Solutions, Moneyworld Research and Advisory, Global Mount Money Research and Advisory, Orange Rich Financials, GoCapital, and CapitalVia Global Research among others for offering fraudulent investment advice.
SEBI consultation on investment advisory services
Last year, SEBI had released a consultation paper with the objective of specifying “uniform standards across all the intermediaries/persons engaged in providing investment advisory services irrespective of whether such activity is incidental to their primary activity or not and to address the gaps or overlaps in legal or regulatory standards.” In the paper, SEBI mentioned that:
It is observed that, many persons are engaged in providing/sending the trading tips/securities specific recommendations, etc., using various electronic modes such as bulk short message services (SMSs), e-mails, blogs, internet or through any other social networking media such as WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc. The general public is getting attracted or lured by such trading tips, securities specific recommendations and their investment decisions are being influenced by such messages which solicit investments and/or promise unrealistic returns in the securities market.
And in order to curb this, SEBI stated that:
No person shall be allowed to provide trading tips, stock specific recommendations to the general public through short message services (SMSs), email, telephonic calls, etc. unless such persons obtain registration as an Investment Adviser or are specifically exempted from obtaining registration.
And the same was extended to “social networking media such as WhatsApp, ChatOn, WeChat, Twitter, Facebook, etc.”
That’s not all, the paper had also discussed at length the role of automated tools (read bots) in the investment advisory segment. It observed that while “there is no express prohibition for use of automated advice tools”, it provided registered investment advisers certain guidelines, including “disclosure to the clients in relation to how the tool works and its limitations of the outputs it generates” and “investment adviser using the tool shall be held responsible for the advice.”
However, we have not heard any new developments or concrete measures based on this paper since then.