Fake Gurus and Risky Bets: Regulators Can Protect Investors by Allowing Better Visibility for Performers
Circa 1929: Legend has it Joseph Kennedy, a smart market player, was offered stock tips from a shoe-shine boy, leading him to sell all his holdings before the October 1929 crash. Kennedy, later the first chairman of the US SEC (Securities and Exchange Commission), reasoned that if shoe-shine boys were giving tips, it was time to exit the market. The market crash was followed by a prolonged Depression.
Circa 2024: ‘Nifty King’ Abhay Gandhi boasts about doing a Rs500-crore scam and spending six years in jail as the right qualification to help you make big money on the stock market. He has posted a pamphlet to SEBI-registered investment advisers which says: “In 2011 I was Involved In 500 Cr Scam At Ahmedabad City. After Releasing On Bail In 2017, I Research On Nifty Call Put Buying Strategy for 7 Years & I Got Perfect Intraday Trading Strategy’ (unedited quote).
Mr Gandhi offers a 30-day stock trading course that will help you earn Rs10 crore+ every month. It is another matter that this self-proclaimed expert is confused about lakhs and crores—the pamphlet quotes a staggering course fee of Rs25 crore, while his website www.fearlesstrade.com cites a more modest Rs25 lakh. Fearless Gandhi has brazenly put out YouTube videos and tweets and a contact number.
Is he an aberration? Not a chance. Educationist, publisher and activist, Maheshwer Peri tweeted: “This influencer @ElvishYadav recommended a stock at Rs.135 and now trading at Rs.7.55. A loss of 94%. He has 16 million followers. He promotes gambling. With allegations of supplying snake venom, using minor girls, threats and bullying, he now wears a rudraksha to save himself.” The regulator has yet to notice his stock tips or the fact that he has no qualification, registration or any compliance requirements. After all, he is an influencer! 
If you are wondering whether investors fall for such tips, you only have to open your daily newspaper. Every single day, there are one or two reports about individuals having lost substantial sums to unregistered, self-proclaimed trading experts they connected with through social media. A media report says India ranks third as a source of malicious social media scams with exponential growth year-on-year.
The Indian Computer Emergency Response Team (CERT-In) issued a recent alert warning people about fake trading apps that entice investors through social media with the promise of substantial earnings demonstrated through manipulated images of their performance claims. The Mumbai police alone has registered 11 cases last month from investors who collectively lost Rs4.4 crore. The modus operandi is consistent – investors buy and sell shares on a seemingly genuine trading platform with their profits displayed online. However, on attempting to withdraw funds, they discover they've been swindled.
It is often said a fool and his money are easily parted and regulators have an unenviable job of trying to prevent this. To their credit, the Reserve Bank of India (RBI) and the Securities & Exchange Board of India (SEBI) have issued multiple warnings and initiated measures to curb excessive leverage, reduce froth in the SME (small and medium enterprise) market and crack down on dubious funding strategies, as mentioned by Debashis Basu, in his column this week: SEBI & RBI Act Swiftly To Control Bull Market Excesses
Evidently, investors must exercise increased vigilance. They should only engage with SEBI-/RBI-registered intermediaries and conduct thorough due diligence before investing. However, could it be argued that regulators themselves contribute to investors being deceived due to their inflexible and unrealistic regulations?
Regulators’ Responsibility
Market experts and intermediaries have consistently argued that SEBI's regulations, compliance requirements and advertisement restrictions for registered market intermediaries are so rigid that top performers struggle to showcase their services or make their presence felt so that enough of investors even notice their existence. Performance metrics of SEBI-registered portfolio managers and mutual funds (MFs) have to be validated by a third-party agency before any claims can be made. 
Conversely, charlatans, influencers and fake-gurus can freely release YouTube videos, Facebook posts, tweets, as well as Instagram and LinkedIn posts recommending specific stocks or making false profit claims. They can misuse the names of well-known investors (the late bulge-bracket investor, Rakesh Jhunjhunwala’s name and photo has been misused), create fake videos of industrialists (industrialists Ratan Tata, Mukesh Ambani, Nandan Nilekani, Narayana Murthy and Azim Premji and some top venture capitalists have been victims) and run cryptos, ponzis and multi-level marketing schemes without fear of being caught. (Read: Fraud Alert: Tata Restart, a Ponzi, Collective Investment Scam Misusing Names of Tata, Sudhir Sethi)
In a raging bull market, like the one we've experienced since mid-2020, the law of probability favours frauds and fakes as the likelihood of their being caught is minimal. The number of manipulators who have faced punishment is far too low to act as a deterrent.
By setting the minimum investment threshold for portfolio management schemes (PMS) at Rs50 lakh, SEBI has limited investors' options. Investors can pay investment advisers, but this seems unappealing because SEBI allows a regulation-free, zero-cost, zero-accountability alternative – advice from unqualified bank relationship managers (RMs). Meanwhile, investment advisers are hobbled by such onerous rules that there are so few in a country where millions of new brokerage and mutual fund accounts have been opened in recent years.
Outside Regulatory Oversight
For most investors seeking a long term nest-egg, their investment journey begins with their bank. It starts with systematic investment plans (SIPs) recommended by RMs, with the option of smoothly sweeping money into MFs every month. RMs also encourage them to open demat accounts, sell insurance, homes and various kinds of loans and leverage, etc. 
RMs have no investment qualifications or certification requirements; they sell products chosen by the bank head–office, based solely on commissions and fees earned by the bank. Worryingly, neither SEBI nor RBI mandates any corporate level rules, validation, disclosure requirements, compliances or checks for investments hawked by banks. As long as the customer signs a form agreeing to invest, the bank bears no responsibility for the products they've recommended. 
Banks and non-banking finance companies (NBFCs) have been known to entice investors into leveraged investments by pledging or placing a lien on other assets or deposits. Bank officials who push such leveraged trades are not subject to regulatory oversight since they do not report to SEBI. 
This time around, RBI has proactively discovered that brokerages linked to banks and finance companies are offering such leverage and has taken steps to curb this. The impact is visible in the crash of small-cap stocks as leveraged investors are forced to unwind positions.
Regulators’ Dilemma
The issue of financial influencers luring gullible investors is a global phenomenon and regulators around the world are grappling with it. In December 2023, the International Organization of Securities Commissions (IOSCO) warned (https://www.iosco.org/library/pubdocs/pdf/ IOSCOPD752.pdf) about ‘Online harm’ or financial fraud that “primarily targets retail investors in the securities and derivatives markets using deceptive acts and / or misleading or fraudulent content, including user-generated content.” These take the form of “advertisements, videos, impersonator websites, social media posts, as well as comments or reviews” and are aimed at inducing investment. IOSCO warns that artificial intelligence (AI) will magnify the scale and impact of harmful online activities while also providing tools for regulators to detect and disrupt them.
However, progress takes time and, so far, the low likelihood of punishment has favoured fraudsters. The solution lies in better vigilance from investors who need to be wary of unsolicited advice, conduct due diligence and watch out for promises of guaranteed returns that seem too good to be true.
A popular solution employed by regulators is investor education. However, mandating intermediaries and service-providers to bombard customers with warnings has diminished its effectiveness.
A better alternative would be to publish data on the best- and worst-performing funds and portfolio managers, under different categories, on SEBI’s website every month without commentary or recommendation. It could be done with appropriate disclaimers and inform investor that they should track authentic data to make decisions, instead of relying on unregistered advisers and influencers. Although this information is available on specialised financial websites, there is a value to its publication by the regulator, coming from the regulator. It would ensure that both the best and worst performers are publicly visible; the viral-ity and amplification of such information by the media and others would be automatic, requiring no additional effort.
4 weeks ago
An incisive article, it is a must read article for all. Human greed blinds a even highly qualified and mature person. I had seen a practising chartered accountant whose crores of equity shares were blown up by an authorised person (sub-broker) who described himself as "Professor of Equity". Luckily for the CA, the broker's complicity was so blatant that the Investors Grievances Redressal Committee of the stock exchange could pass a handsome recovery order.

SEBI needs to do 4 things:
1. Seek from public any such advertisement and slam it immediately,
2. SEBI should also look for such ads proactively and slam them,
3. Require social media such as YouTube, FB, MSN, & google to publish investment advice related ads, only for SEBI registered advisors, and;
4. Rate the magazines for their quality of analysis and encourage the investors to rely on highly rated investment magazines.
4 weeks ago
Most secure job in India without any accontabily ,all perks only.. sebi,rbi and sc

1 month ago
I've said it before, and I'll say it again: SEBI is a joke.
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