In Re Stock Recommendations using Social Media Channel (Telegram) (SEBI)
despite taking all possible steps by SEBI like the one stated above, the miscreants always try to create a bypass to the Regulatory fence to implement their malicious schemes to earn unlawful gains. Like in the present case, the application of Telegram which is essentially an application based Chat platform has been used by the Noticees herein to implement the same strategy as was being used by sending Bulk SMS. As part of its many novel features, Telegram allows creation of public channels wherein large number of subscribers can be added to be part of it, without disclosing the identity of the persons behind such channel. Such a Channel essentially acts as a message dissemination forum where the Administrators only are allowed to disseminate messages, the content of which is solely decided by them. The subscribers, on the other hand, can only read/view such content and such subscribers do not have any option to send messages or respond to the messages sent by the Administrators.
As demonstrated in the present order, this feature of Telegram has been successfully used for illicit activities like manipulating the stock prices by repeatedly sending unfounded stock recommendations for the personal yet unlawful benefit of the Administrators of such Channel. The tips circulated through the Channel create an inducing impact which are then followed by the subscribers and ironically, such stock tips may also prove to be true, if large number of recipients of such tips believe it and collectively act on it. Slowly and gradually, after seeing the price of the said thinly traded scrip actually rising, more and more subscribers start believing in the tips and start acting on it, which further strengthens the belief of such tips being genuine, as large number of individuals end up acting on such tips and by their collective buying actions, convert the deceitful, specious and baseless tips to realty.
Consequently, when large number of investors start following and acting on the tips issued to them on a social media platform with respect to the scrip of a small cap company or thinly traded company, the price and volume of the said scrip are bound to rise which again in turn would reinforce the belief of such investors in the tips & recommendations received by them from the said social media channel leading to more & more investors/subscribers of such channel getting trapped in the mirage crafted by the Noticees. Such collective belief by the large base of subscribers of the channel in the stock recommendations given by the Noticees would lead to a bull run in the said scrips and propel the scrip price/volume upwards, ultimately giving a golden opportunity to the Noticees to make unlawful profits by selling their shares in the same scrip.
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.
In view of the foregoing compelling facts and circumstances and after a careful consideration of the totality of the facts surrounding the case which reveals such blatant acts of fraud & unfair acts have been committed by the Noticees to earn money in an unlawful manner, in my view the balance of convenience strongly lies in favour of invocation of the statutory powers of SEBI to pass interim directions to the Noticees.
The startling revelations that came out of SEBI’s investigation which have been already narrated in the preceding paragraphs, show how entities who do not even possess basic minimum qualifications related to securities market have blatantly disclosed in the social media channel that their team comprises 4 persons having combined experience of 40 years in the securities market and are in the process of seeking registration with the Regulator are seen with issuing stock recommendations. Considering the length of experiences in securities markets as claimed by the Noticees in their channel, it is but natural for the subscribers to strongly believe in and rely upon those speculative, and baseless stock tips & recommendations issued by the Noticees for taking trading positions in those scrips without knowing the true malafide intent and nefarious design crafted by the Noticees to make quick unlawful profits from the securities market. Such dubious acts of the Noticees are quite alarming hence, it becomes imperative to act immediately and restrain them from perpetuating such fraudulent activities in the securities market through any other scheme and in any other manner thereby further threatening the integrity of the securities market.
Insofar as the impounding of unlawful gains is concerned, it has already been established by the investigation that the Noticee nos. 1, 2 and 3 were the Administrators of the said Telegram Channel, out of which Noticee nos. 1 and 2 are brothers. Both of the said Noticees were involved in transmission of stock tips and recommendations to the Channel as well as execution of trades in the trading accounts of the Noticee nos. 4, 5 and 6, who are their family members. In the said process, which apparently seems to have been initiated by Noticee nos. 1 and 2, the other Noticees, i.e., Noticee nos. 4, 5, and 6, who are the family members of Noticee nos. 1 and 2 and, Noticee no. 3 who is the friend of Noticee no. 2; are unequivocally seen to have joined the illicit scheme devised by Noticee nos. 1 and 2 for their own gains. Noticee nos. 4, 5 and 6 have provided the commands and control of their respective trading accounts to Noticee nos. 1 and 2. Noticee no. 3, apart from being one of the Administrator of the said Telegram Channel, is also seen to have got the information about the impending recommendations to be made on the Telegram Channel before -hand through Whatsapp chats from Noticee no. 1. Thus, the deployment of the scheme and making of unlawful profits through the said scheme have been jointly and severally undertaken by Noticee nos. 1, 2,3, 4, 5 and 6. Therefore, in the fitness of things, all the Noticee viz., Noticee nos. 1, 2, 3, 4, 5 and 6 are liable to be held jointly and severally responsible for actively colluding with each other in devising and implementing the scheme for the unlawful profits made through the said scheme.
Accordingly, as an urgent interim measure to prevent the Noticees from continuing with such fraudulent acts, it is now warranted that an order under Section 11 (1) read with Section 11 (4) (d) and 11B (1) be passed against the Noticees, restraining the Noticees from being associated with the securities market as well for impounding the unlawful profits so far made by them through their fraudulent acts in contravention of various provisions of SEBI Act, 1992 and PFUTP Regulations.
All the Noticees viz: Noticee nos. 1 to 6 are restrained from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders.
FULL TEXT OF THE SEBI ORDER
WTM/SKM/54/201-22
BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM: S. K. MOHANTY, WHOLE TIME MEMBER
Interim Order cum Show Cause Notice
Under Sections 11(1), 11(4), 11 (4A),11B (1) and 11B (2) of the Securities and
Exchange Board of India Act, 1992 and
Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices Relating to Securities Market) Regulations, 2003 and
Securities and Exchange Board of India (Procedure for Holding Inquiry and
Imposing Penalties) Rules, 1995
In respect of:
