SEBI cracks the whip on stock manipulators – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/markets/sebi-cracks-down-on-bullrun-2017an-illegal-telegram-channel-for-stock-tips/article64822101.ece

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Scores of ‘closed groups’ under scanner; regulator forms special team to tackle menace of frontrunning

The Securities and Exchange Board of India (SEBI) has started cracking down on those giving stock tips via apps like Telegram, WhatsApp and other social media handles. The market regulator has formed a special team of officials to tackle the menace of frontrunning in the stock markets after receiving complaints from investors about groups manipulating the stock marget through apps like Telegram, WhatsApp and platforms like Reddit, Instagram and Facebook.

According to sources, the crackdown on ‘Bull Run 2017’ a secret Telegram channel that gave intra-day stock tips to around 52000 subscribers, mainly retail investors, was only the beginning as scores of other such ‘closed groups’ on social media platforms are under the scanner of market regulator SEBI.

In December 2021, SEBI conducted multiple raids in Ahmedabad and other parts of Gujarat to nab those running the Telegram channel ‘Bull Run 2017.’ SEBI investigations found that the creators of Bull Run 2017 first took positions in stocks they recommended to their subscribers. Also, many of the stocks being recommended via the channel were otherwise illiquid counters, which are easy to manipulate.

On Wednesday, SEBI issued an interim order against Himanshu Mahendrabhai Patel, Raj Mahendrabhai Patel, Jaydev Zala, Mahendrabhai Bechardas Patel, Kokilaben Mahendrabhai Patel and Avaniben Kirankumar Patel for indulging in fraudulent and unfair trade practices and established wrongful gains of Rs 2.84 crore made through stock recommendations. SEBI investigations showed that Himanshu, Raj and Jaydev gave recommended small cap stocks, whose price and volume was easily impacted. SEBI found that creators or the handlers of the Telegram channel first took positions in the stocks they recommended and then offloaded their positions when their subscribers made purchases. This is called as frontrunning the markets. The accused, who were handling the Telegram channel, also undertook traders in the accounts of their family members.

Who can give stock tips?

According to Tomu Francis, partner at Mumbai law firm Khaitan & Co, giving investment advice in ‘closed groups’ on the social media by those who are not registered with SEBI is considered illegal as per the regulator’s investment advisor rules.

“Talking about macro ideas and stock market patterns or giving ideas on wide public platforms like television channels or newspapers is allowed. But rules prohibit people from giving specific stock tips on ‘closed group,’ which are accessible only to limited members or work on subscription models. In any case, those giving stock tips even on television channels cannot indulge in frontrunning. Unless Registered with SEBI, a person cannot portray himself as an investment advisor. However, any investment advice given through any electronic or broadcasting or telecommunications medium, which is widely available to the public will not be considered as investment advice under applicable SEBI Regulations. In such a scenario, many social media channels and groups are in violation of rules,” Francis said.

Separately, SEBI has also been monitoring social media platforms for possible insider trading violations. The ‘Whatsapp leaks’ case had sent shivers down the spine of the analyst community in 2017 when SEBI started looking into private phone messages of several broking employees to determine if they had indulged in insider trading. At that time SEBI had initiated a crackdown during which search and seizure operations against 26 entities of a WhatsApp group were conducted and about 190 devices and records, among others, were seized.stocks and sharesPublished on January 13, 2022

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