Social media is full of stock tips and advice, which may not always be genuine. Individuals and even fraudulent companies often circulate these.
Capital markets regulator Securities and Exchange Board of India (Sebi) today searched the premises of seven individuals and one company in various cities for circulating stock tips on social media, according to media reports.
What Was The Scam About?
Sebi has seized laptops, mobile phones, desktops, tablets, hard drive disks and pen drives, and other documents. All of these were used to send out stock recommendations to innocent people.
Sebi said in a statement that it identified nine Telegram groups (a social media messaging app) with over 5 million members.
The accused, who were allegedly running Telegram and other social media groups, have no financial advisory credentials and are not registered with Sebi, according to the reports.
They allegedly used these groups to spread false and misleading information about stocks. Such activity can easily impact the stock price or trading volume.
"Investing on tips is probably the worst way to invest your hard-earned money. The problem with tips is there is no accountability, no recourse, no one is checking the qualifications of the advisor, veracity of returns, quality of the stock. This is a great playground for operators, pump and dump schemes," said Kanika Agarrwal, Co-founder of Upside AI, a portfolio management service provider.
Heed The Warning
Stock exchanges regularly have warned investors not to invest based upon stock recommendations circulated in various social media groups.
The National Stock Exchange of India (NSE) has a dedicated helpline number and email (+91 8291833676 and firstname.lastname@example.org), using which investors can lodge a complaint about any such fraudulent stock recommendation activity.
The Bombay Stock Exchange (BSE) also has a dedicated number and email (+91 7506840578 and email@example.com) to help investors report any unsolicited stock tip or recommendation.
“Stock exchanges kee.p on giving warnings to investors about not investing on the basis of stock tips available on social media. They ask investors to be cautious and not to rely on rumours and tips. One needs to study the fundamentals of a company before investing. Never ever invest based on unsolicited news,” says A.K. Narayan, CEO and Founder of AKNARAYANASSOCIATES, a Sebi-registered financial advisor.
It's better to steer clear of such advice as genuine Sebi-registered financial advisors will never be seen discussing investing strategies and advice, especially on individual stocks, on social media platforms. Financial plans are usually tailored to individuals’ specific needs.
“Investment decisions should not be taken in haste and certainly not by listening to social media stock recommendation tips. Investors should do their own due diligence before buying or selling any of their investments,” says Suresh Sadagopan, Founder, Ladder7 Financial Advisories.