Many people nowadays give investment advice on social media and are commonly known as influencers. However, not all are genuine. Some have been caught giving misleading information or indulging in manipulative practices, posing a major threat to unsuspected investors. The Securities and Exchange Board of India (Sebi) has raised many red flags regarding them in the past, but their growing numbers and reach are a major worry. The extensive use of smartphones to watch YouTube videos or post messages on Twitter and Telegram gave them a huge exposure.

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The issue once again hit the headlines after Sebi recently banned 17 entities and individuals from the securities market for five years and two others for three years for allegedly operating a pump-and-dump scheme in Superior Finlease, a non-banking financial company. “Pump-and-dump” is a type of market manipulation in which the price of a security is artificially inflated by giving false or misleading information. The regulator slapped a Rs. 5 crore penalty on Finlease’s director, Rajneesh Kumar. Other accused involved in the scheme were also fined heavily.

These incidents show the dangers bogus finfluencers pose to people. The Sebi order makes clear that it will severely punish those involved in such manipulative practices.

Regulatory Oversight

Sebi mandates investment advisors and research analysts to register with the regulator. However, the mushrooming finfluencers on social media may have made it difficult to check the credentials or scrutinise all those offering financial advice online. On the other hand, IAs and RAs have to follow strict Sebi guidelines to carry out their activities. On the contrary, many finfluencers operate without registration, qualification, or ethics. So, while it may be a free run for some finfluencers, the regulatory rigour of IAs and RAs may have hindered their growth.

For instance, IAs and RAs who want to give stock and security recommendations must have prior registration. On the other hand, many finfluencers recommend stocks or give advice on futures or options trading on social media without following the Sebi guidelines.

Sebi has started using technology to identify these rule breakers. Additionally, it has strengthened the regulations related to fraud and price manipulation to punish the “unethical” finfluencers, with provisions for steep penalties for “unfair trade” in the securities market. Acts, such as sharing false information relating to securities, are also deemed rule violations.

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Recent Trends

A recent Sebi analysis revealed a rise in young and small investors trading derivatives, with more than 90 per cent incurring losses. Many finfluencers were also found to promote scams and offer misleading advice on decisions, like portfolio allocation and futures trading. The study highlights the dangers of influencers attracting gullible and greedy investors into this dangerous field, highlighting the need for caution and avoiding misleading advice.