Social media scamsters prey on India’s investors
MUMBAI: India’s mom-and-pop investors are facing testing times. During a pandemic-era surge in the stock market, millions poured their savings into equities, drawing on advice from unauthorized financial advisers and social media “gurus” to help identify the next big ticket.
But a recent slide in stock values has laid bare the dangers of India’s lax capital market regulations. Many amateur retail investors, especially the young, sought to make a quick buck by consulting informal groups on platforms like WhatsApp and Telegram. Recourse for investments gone awry is limited: In India, fines for everything from insider trading to wire fraud are a fraction of those imposed in some western nations.
India’s regulators are now cracking down on internet scams. The Securities and Exchange Board of India recently urged investors to stay vigilant of so-called “pump and dump” schemes -- a type of securities fraud that involves artificially inflating prices -- and not rely on stock tips from unverified online services.
It’s an increasingly fraught topic around the world. Securities regulators from Spain to Australia are mulling ways to enforce restrictions against social media influencers. Earlier this year, Sebi shut down a Telegram channel called “Bullrun2017” that purported to specialize in penny or small-cap stocks. Group administrators bought shares of small companies, recommended them to their 50,000 or so subscribers, and then sold them for a profit, according to a Sebi order.
In March, the regulator raided premises linked to seven individuals and one company running nine Telegram channels with more than five million subscribers. They utilized a similar strategy of inflating prices and then selling stocks at a high. Telegram declined to comment.
“Most of these paid services are not good,” said Aditya Trivedi, 25, who runs a popular Telegram group that provides free advice on trade calls. “They regularly post fake screenshots of their profits to stimulate greed. A small guy gets swayed by the hope that they will also make money.”
Enforcement is often tricky in India. Unlike in many western nations, India’s tangled legal system hardly acts as a deterrent.
What’s clear is domestic retail investors are here to stay. India has seen a steady rise in such investors over the past five years as a stagnant real estate market and low interest rates pushed the middle class to explore equity markets.
The number of new electronic trading accounts opened each month has increased sixfold between 2019 and 2022, according to finance minister, Nirmala Sitharaman.
But online fraud has surged in tandem with the growth of inexperienced investors. Indian consumers were 10% more likely than the global average to encounter a scam and 3 times more likely to continue with a ruse, according to a recent study from Microsoft Inc.