Introduction
The growing use of social media applications and exchange of information through these forums has provided platforms to investors that may enable the coordination of their actions to manipulate the stock market in the short-term. In
In a similar case of stock price manipulation by the use of messaging applications, Telegram and
Facts of the Case
SEBI initiated investigation into the matter on
SEBI observed that the modus operandi of these individuals was that their trading accounts were used to first buy the shares of the concerned companies, followed by making positive recommendations on those scrips through the Telegram channel. This would induce thousands of subscribers to deal in those shares and eventually, after making such recommendations to the subscribers, the individuals would sell the shares in the market so accumulated by them for a profit. Thus, SEBI observed that when recommendations were made on the channel, that particular scrip witnessed an increase in price fluctuations. The 3 individuals who were found to be the administrators of the Telegram channel also made patently false claims that the channel had a team of 4 research analysts who were in the process of seeking registration with SEBI as research analysts.
Decision
Thus, SEBI held that the commission of such deceitful acts by the individuals by engaging in the scheme discussed above, with a dubious intent to make money at the cost of the interest of innocent investors in the securities markets are prima facie in glaring violations of Sections 12 A (a), (b), (c) of the SEBI Act read with Regulations 3 (a), (b), (c), (d), 4 (1), 4 (2) (a), (d), (e), (k), (o) and (r) of the PFUTP Regulations.
Applicable Law
The relevant sub-sections of Section 12 A of the SEBI Act inter alia discuss that no person shall directly or indirectly use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance, or employ any device, scheme or artifice to defraud or engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in contravention of the provisions of the Act or the rules or the regulations made thereunder.
Regulation 3 of the PFUTP Regulations discusses the prohibition of certain dealing in securities and Regulation 4 discusses the prohibition of manipulative, fraudulent and unfair trade practices. The relevant manipulative, fraudulent or unfair trade practices under Regulation 4 used in this case are the following:
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knowingly indulging in an act which creates false or misleading appearance of trading in the securities market;
- inducing any person for dealing in any securities for artificially inflating, depressing, maintaining or causing fluctuation in the price of securities through any means including by paying, offering or agreeing to pay or offer any money or money's worth, directly or indirectly, to any person;
- any act or omission amounting to manipulation of the price of a security including, influencing or manipulating the reference price or bench mark price of any securities;
- disseminating information or advice through any media, whether physical or digital, which the disseminator knows to be false or misleading and which is designed or likely to influence the decision of investors dealing in securities;
- fraudulent inducement of any person by a market participant to deal in securities with the objective of enhancing his brokerage or commission or income; and
- knowingly false or misleading news or information may induce sale or purchase of securities.
Conclusion
Holding the 6 individuals in contravention of the aforementioned provisions, SEBI has restrained them from buying, selling or dealing in securities. Further, SEBI has directed them to open an escrow account and deposit the impounded amount of
The Order mentions that any major technological innovation brings with it the hazards of its potential mis-utilisation by offenders who use it for performing illicit activities. Social media channels are being exploited for such fraudulent, deceitful, and unfair trade practices. Common investors should be cautious of being enticed by such schemes and it may be prudent to independently research investment opportunities.
Footnote
1. https://www.sebi.gov.in/enforcement/orders/jan-2022/interim-order-in-the-matter-of-stock-recommendations-using-social-media-channel-telegram_55305.html
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