In a significant step to safeguard retail investors, the Securities and Exchange Board of India (SEBI) has prohibited seven entities from the capital markets for their involvement in a stock manipulation scheme devised on social media platforms. According to the market regulator’s investigation, these individuals posed as financial influencers or “finfluencers” and used online platforms to artificially inflate the prices of certain stocks. They created fake demand by spreading false info and aggressive buy calls to their huge online audiences, leading to a spike in stock volumes and prices.
SEBI’s interim order said the proscribed entities then executed trades in the opposite direction, quietly selling off their own shares to book fraudulent and substantial profits after unsuspecting retail investors drove up the stock prices. This classic “pump-and-dump” scam was against the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) norms. Besides, SEBI has ordered impounding and disgorgement of illegal gains made through the fraudulent scheme, besides the market ban which prohibits them from buying, selling or dealing in securities, directly or indirectly.
This stringent action is a symbol of SEBI’s increasing scrutiny towards the unregulated finfluencer ecosystem. Over the past year, the regulator has gradually tightened rules for financial advice on social media, bringing in tough advertisement codes and barring regulated market intermediaries from associating with unregistered influencers. The latest crackdown by SEBI is a stern warning against commercialization of misleading financial tips online and highlights the need for the retail investors to rely only on SEBI-registered professionals for investment advice.
