Social Media Scammers Prey on Indian Amateur Investors, Marketing & Advertising News, ET BrandEquity

Representative image (iStock)

India’s mom-and-pop investors face testing times. During a pandemic-era stock market boom, millions of people invested their savings in stocks, relying on the advice of unlicensed financial advisers and social media ‘gurus’ to help identify the next big ticket.

But a recent decline in stock market values ​​has laid bare the dangers of lax capital market regulation in India. Many amateur retail investors, especially young people, have sought to make a quick buck by checking out informal groups on platforms like WhatsApp and Telegram. Remedies for investments that go wrong are limited: in India, fines for everything from insider trading to wire fraud are a fraction of those imposed in some Western countries.

Indian regulators are now cracking down on internet scams. The Securities and Exchange Board of India recently urged investors to remain vigilant against so-called “pump and dump” schemes – a type of securities fraud that involves artificially inflating prices – and not to rely on stock tips from unverified online services.

This is an increasingly sensitive subject around the world. Securities regulators from Spain to Australia are considering ways to enforce restrictions against social media influencers. Earlier this year, SEBI shut down a Telegram channel called “Bullrun2017” that claimed to specialize in penny or small-cap stocks. The group’s administrators bought shares of small companies, recommended them to their roughly 50,000 followers, then sold them at a profit, according to a SEBI order.

In March, the regulator raided premises linked to seven people and a company operating nine Telegram channels with more than five million subscribers. They used a similar strategy of inflating prices and then selling shares at a high price. Telegram declined to comment.

“Most of these paid services are no good,” said Aditya Trivedi, 25, who runs a popular Telegram group that provides free advice on business calls. “They regularly post fake screenshots of their profits to incite greed. A little guy lets himself be swayed by the hope that he will also make money.

Trivedi, who has more than 30,000 followers and learned about trading on Twitter, said companies often reach out to influencers like him for paid ads to boost their stock value. He said he refused such requests.

Loopholes persist
The vast challenges of social media monitoring do not help. In April, Twitter was suddenly inundated with recommendations from several verified handles to invest in shares of Supreme Engineering Ltd. – a Mumbai-based manufacturer of specialty alloys and wire products – after securing a government contract. Following the online promotion, the penny stock gained nearly 21%.

Twitter and Supreme Engineering did not respond to requests for comment.

Enforcement is often tricky in India. Unlike many Western countries, where laws protecting investors are intimidating and long prison sentences are a real prospect for offenders, India’s tangled legal system does little to deter. Many cases drag on without resolution. The capital market regulator only got the power to arrest violators of securities laws a few years ago.

What is clear is that domestic retail investors are here to stay. India has seen a steady increase in the number of such investors over the past five years as a sluggish property market and low interest rates pushed the middle class to explore the stock markets. This new cohort of investors is now a key shock absorber for India’s $3.2 trillion stock market, following the fall in global indices due to rising oil prices and the Russian-Ukrainian war.

The number of new electronic trading accounts opened every month has increased sixfold between 2019 and 2022, according to Indian Finance Minister Nirmala Sitharaman.

Social media scammers prey on Indian amateur investors

But online fraud has increased alongside the growth of inexperienced investors. Indian consumers were 10% more likely than the global average to encounter a scam and three times more likely to pursue a scam, according to a recent study by Microsoft Inc. The report surveyed more than 16,000 internet users in 16 countries.

Vivek Mashrani, a former banker and founder of Techno Funds Ventures Pvt Ltd, an investor education company, said the internet has supplanted television as the medium of choice for such scams in India. “Wherever there are public eyeballs, people will use those channels directly or indirectly for self-interest,” he said.

Many scammers have taken advantage of the shortage of registered investment advisers in India. The country currently has around 62 million unique investors, according to the National Stock Exchange of India, compared to just 1,330 advisers. According to SEBI rules, only certified analysts are allowed to provide financial services.

But flaws persist, especially online. In 2016, SEBI proposed to ban unregistered individuals or companies from providing investment advice via social media. Yet the recommendation has yet to result in clear rules as to whether counseling can be provided in an informal educational capacity, an ambiguity that many continue to exploit.

“Given the growing influence of social media platforms on investors, SEBI is likely to make changes to its regulations to fill the gaps,” said Sumit Agrawal, former SEBI Deputy General Counsel. “The success of these changes will depend on how these regulations are enforced.”

SEBI did not respond to multiple emails and calls seeking comment.

Identify the pitfalls
Kanika Arora, 34, an accountant from Mumbai, is one investor who said she fell into such a trap last year.

After subscribing to the portfolio management services offered on Telegram by the Namdev Mane Trading Academy, the eponymous founder contacted her directly on the platform. “I personally would buy and sell on your account,” Mane wrote, noting that he would collect 40% of the profits and charge a one-time fee of around $60. “Please note that you cannot make money from trading yourself.

Within months, Arora said he lost more than half of his investment of 100,000 rupees (about $1,250).

“Ultimately, I was guilty of trusting someone who was not a SEBI registered portfolio manager and therefore took no further action,” she said, adding that a friend had recommended Mane’s services.

In an interview, Namdev Mane, who lives in the city of Pune, said that he was an options trader and held an MBA, but was not registered with SEBI in as an investment advisor. He denied wrongdoing, noting that he provides calls on Indian indices, but does not offer stock advice.

“Loss of market does not equal fraud,” he said. “I don’t force anyone to take my services.”

Mashrani, the former banker, said Indian regulators needed to increase the number of investment advisers by easing some restrictions. The NSE warned retail traders this month against reckless derivatives trading after observing that many online influencers were promoting complex options trading to inexperienced clients.

“More qualified people are needed to be licensed in the formal channel,” Mashrani said. “It will automatically weed out unregulated guys.”

The company will reconnect with distributors. employees, investors and also invest in people, physical presence in the country to capture new pockets of growth and also launch new products.

A trio of Alphabet executives sounded cautious on a call with investment analysts, using “uncertain” or “uncertainty” at least 13 times to describe the economy. YouTube ad sales grew at their slowest pace since disclosures began in 2018.

At current prices, Pinterest, Meta, Twitter, Alphabet and Snap were collectively expected to lose approximately $42 billion in market value. Twitter also blamed its ongoing battle to close its $44 billion acquisition by Elon Musk for the surprise drop in quarterly revenue. Shares of the microblogging site fell 0.1% in choppy trading.

Comments are closed.