The Securities and Exchange Board of India (SEBI) has come down heavily on Telegram channel and WhatsApp groups that were used to illegally inflate stock prices by which the administrators of the groups made illegal profits.
In its interim order passed on Wednesday, the SEBI held,
“…any major technological innovation brings with it the hazards of its potential mis-utilisation by offenders who use it for performing illicit activities…Nevertheless, SEBI being entrusted with the mandate of protecting the interest of the investors 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…”
Six persons operating a Telegram channel (noticees), who were found to have made a cumulative profit of ₹2.8 crore, were barred from dealing in securities until further orders.
The activities of the channel were brought to SEBI’s notice through two complaints filed in July and October 2021. It was alleged that certain persons not registered with SEBI to function in the securities markets as intermediaries, were using social media platforms like Telegram and Twitter to artificially influence stock prices so as to make illegal profits.
Based on these complaints, the markets regulator conducted an investigation for the period between January 1, 2021 and November 12, 2021.
Modus operandi of the Telegram channel
The SEBI investigated a Telegram channel called “bullrun2017”/” Bull Run Investment Educational Channel,” which as on December 14, 2021, had 51,980 subscribers. The channel was claimed to be run by a team of research analysts with a combined experience of 40 years and who were in the process of getting SEBI registration.
The channel provided recommendations to its subscribers for trading in both cash as well as derivatives segments, for both intra-day as well as positional trades. The recommendations issued with respect to the cash segment were majorly focused on small cap scrips.
SEBI managed to identify the group administrators and seized their mobile phones.
As an illustration of how they operated, SEBI in its order cited the example of advice given to invest in a company called M/s. Total Transport Sys Limited, through which the noticees made a combined profit of ₹9 lakh. The administrators allured others to trade in the scrip Total Transport on multiple days, between April and July 2021.
SEBI noted from the records that the price and volume of the Total scrip faced significant impact as soon as recommendations were made on the Telegram channel. The noticees had accumulated shares of Total Transport in large quantities before making their recommendations on the said scrip and thereafter eventually squared off their position by earning a substantial profit in a quick span.
From the evidence on record, SEBI concluded that the noticees:
“…knowingly devised an imaginative scheme for defrauding innocent investors by engaging in such deceitful acts to induce thousands of gullible subscribers to their Telegram Channel and in this process to induce the other general investors as well, to deal in securities purely based upon misleading, specious and unsolicited stock tips about specific scrips recommended by the Noticees through their social media account in Telegram Channel, and such tips & recommendations were devoid of any fundamental analysis or supporting information and were purely speculative messages without any basis.”
The order also contained a table representing how much profit each of the noticees made through these channels.
It was held that the profits so made by the noticees have to be prima facie held as unlawful/wrongful gains, that would not have accrued to them had the trades not been executed by them under the scheme, as unearthed by the SEBI investigation.
Thus, the SEBI prima facie found that the actions of the noticees amounted to violations of provisions of the SEBI Act, 1992 and the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
Apart from barring the noticees from dealing in the securities market, SEBI impounded their bank accounts jointly and severally for an amount of ₹2,84,29,948. They were also asked to show cause as to why they should not disgorge the profits they made on account of the scheme, and why they should not be barred from accessing the securities market for an appropriate period.
Read Order here: