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SEBI takes action against 6 people accused of using Telegram to manipulate stock market

Calling it ingenious, the manner in which the fraud was carried out was revealed by SEBI to partly involve FOMO.

Six people were “restrained from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever” after they were found manipulating prices of various stocks using their Telegram channel, according to an interim order issued by the Securities Exchange Board of India (SEBI).

SEBI‘s order also impounded bank accounts belonging to the six accused for an amount of Rs. 2,84,29,948— the proceeds accrued through their unfair practices. They will also have to open an escrow account with a nationalised/scheduled bank and deposit the impounded amount within 15 days.

Moreover, the accused cannot dispose of any assets unless they deposit the impounded amount in the escrow account besides providing a full inventory of assets held in their name. SEBI has also directed them to close out/square off their open position in any exchange-traded derivative contracts within three months.

Why this matters: Social media has become fertile ground for disinformation and there are thousands of influencers using platforms to give recommendations or promote stocks of their choice with little to no oversight. The order by SEBI brings into focus the magnitude of the problem and the recourse available to investors.

How did the accused use social media to manipulate stock prices?

The matter was brought to SEBI’s attention after it received two undated complaints on July 30 and October 11 last year. They alleged that few people, who do not possess SEBI’s approval to function as intermediaries in the securities markets, were “using social media platforms like Telegram and Twitter to artificially influence the stock prices, so as to make illegal profits”, as per the order.

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SEBI then initiated an investigation into the Telegram channel called bullrun2017 from January 1 to November 12, 2021. The securities watchdog found that the channel has been operational since 2017. It was promoted across Facebook, WhatsApp, Instagram, etc., and through family and friends, to attract more subscribers.

Some of the stocks, primarily small-cap, targeted by the group include:

  • Total transport
  • Metro Global
  • Alkali Metals

SEBI’s findings

The investigation revealed that the Telegram channel’s subscribers witnessed a spike from 35,016 subscribers in July 2021 to 51,980 subscribers in December 2021. The regulator also noted that the texts recovered from the accused painted “an ingenious manner” in which the recommendations were being made so as to create a “Fear of Missing Out” among subscribers.

The order described the modus operandi as following:

  1. Certain entities actively operating through such social media channels first take a position (purchasing shares) in small cap companies in bulk quantities;
  2. They then send baseless and fraudulent messages “indicating strong possibilities of immediate price hike in such scrips through social media channels thereby instigating others to take bullish position in those scrips”;
  3. The shares are then sold off after the prices go up, and they make profits out of such trades executed fraudulently.

The channel’s description read as: “We are team of 4 Research Analysts with combined experience of 40 years. All calls are for study purpose only. Taking any trade consultant your financial advisor. We are in the process of getting SEBI Research Analyst Registration.”

SEBI observed that the recommendations were being made by a person who had pursued Masters in Tourism Management and had some experience of working in a hotel but did not possess any qualification related to the securities market.

“They have also made a false declaration that they are in the process of seeking registration with SEBI as Research Analysts,” read the order.

SEBI’s views on misuse of social media to manipulate stock market

The regulatory body observed in the order that technology was growing and major technological changes brought with it the “hazards of its potential mis-utilisation”.

  • It wrote that miscreants always try to create a bypass to the regulatory fence to implement their malicious schemes to earn unlawful gains despite all possible steps by SEBI.
  • The watchdog said that the accused used Telegram, which is a chat platform, to implement the same strategy as was being used by sending bulk SMS a few years ago.
  • It wrote that tips circulated through social media channels induced subscribers to buy stocks and ironically, such stock tips may prove to be true if a large number of recipients believe it and act on it collectively.
  • Once they see a rise in price, more and more subscribers start believing the tips which emanate from a dubious source and further reinforces the belief that the tips are genuine.
  • SEBI wrote that it “cannot be a mute spectator irrespective of the technology used by the delinquents and such delinquents need to be kept out of the walls of the securities market”.

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Written By

I cover several beats such as Crypto, Telecom, and OTT at MediaNama. I can be found loitering at my local theatre when I am off work consuming movies by the dozen.

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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