In the past few days, thousands of angry traders have been spewing vitriol about several high-profile trainers who, it is alleged, have consistently made false claims about their trading prowess to lure gullible investors into buying their online trading courses or open brokerage accounts from which they make crores of rupees as referral fees. How serious is the issue? Or are angry investors just looking for someone to blame as they slowly realise the truth of a study released by the market regulator early this year, which showed that 90% of active traders dabbling in derivatives trading had lost money in 2021-22 (Read: 90% of Traders May Lose in the F&O Casino, but Here Is Why the Casino Will Only Get Bigger?
The Indian capital market has seen an unprecedented boom in the past three years as tens of millions of new investors entered the stock market with the sole objective of making quick money. Given the hunger for information and quick trading expertise, many self-styled experts with just a few years of market experience found a money-making opportunity in offering stock market trading courses that charge anywhere between Rs4,000 and Rs60,000.
These trainers often rely on strategies unrelated to their actual trading skills or knowledge. The swagger to project themselves as successful traders with fraudulent claims of humungous profits, social media proficiency and tech-savvy are tactics that help promote their training courses while also generating income via broker affiliations and influence peddling.
Some of these YouTubers have garnered millions of followers, all desperate for quick riches, but three years is a long time for someone who has lost a lot of money, so the hype, lies and fakery are slowly being exposed from within. A vigilante action of sorts by a group of individuals has exposed the fact that two trainers, who claimed to make huge profits due to their superior trading skills, have actually been hiding losses on derivative trading. It is further alleged that they have been violating rules by offering trading tips to subscribers on subscriber-only social media groups without obtaining registration with Securities and Exchange Board of India (SEBI) as investment advisers. The tips have also led to serious losses, triggering an outpouring of anger against trainers and demand for investigation and regulation of their activities.
These developments are all part of today’s reality. The reach and spread of social media ensures that every activity and its misuse blows up and peaks with lightning speed, leaving the market regulator struggling to catch up, let alone regulate these activities. Intriguingly, the first call for regulation and disciplinary action has come from saner voices within the industry.
Readers would recall that, in July 2021, I wrote about how the SEBI did not feel the need to regulate retail algos, even though insiders as well as exchanges wanted regulation to protect retail investors (Read: Why Is SEBI Reluctant To Regulate Retail Algos?
More importantly, although an algorithm is a computer-coded investment strategy, it is not subject to any regulation, unlike registered investment advisers; algo writers were also getting away with false promises of extraordinary returns. Some were also running portfolios for clients, further violating established rules.
The obvious next target was financial influencers, who peddled any product or service for a price on social media platforms. Here, too, SEBI has been talking about regulation since November 2022 but only got around to releasing a consultation paper after industry insiders were goaded into conducting a ‘sting’ to establish the lack of ethics in the industry and how they are only focused on their payments (Read: Manufacturing Reputations: A Sting Operation on the World Fin-influencers
SEBI has proposed a model that aims to disrupt the revenue model of fin-influencers by mandating that registered intermediaries route payments through a neutral platform, making them accountable. But this will not cover non-registered trainers and the illegal advisories and portfolio management services that they run. (Read: Manufacturing Reputations: A Sting Operation on the World Fin-influencers
Trainers and the Need for Regulation:
On 29th August, a set of investors (Shreyas Bandi, Zubare Khan and Himansh) created a stir on X (Twitter) by posting documents to suggest that high-profile trainers, who are popular speakers at TEDx talks and college festivals were actually making losses on their derivatives trades. They were not the genius traders they claimed to be but earned significant income as trainers, which was supplemented by earnings as influencers, YouTubers and through referral fees from brokerage firms.
The fakery about their expertise is significant because people are lured into subscribing to the training or videos by the screenshots that they post every day, claiming to have made crores of rupees as trading profits. To curb this, Zerodha came out with a ‘verified’ label for the claimed profits. Most self-styled trading gurus and trainers claim to post ‘verified profit & loss (P&L)’ statements provided by top brokerage firms as proof of authenticity. But investor Zubare Khan (@KhanZubare) and others have posted videos that demonstrate how so-called experts edit their P&L and claim fake profits when speaking at traders’ meets.
Ashish Nanda of Kotak Securities, whose firm does not provide such authentication, has also posted a thread pointing out how ‘verified P&L statements’ from a single brokerage firm can mislead people since they do not provide a complete picture of a person’s trading performance across all accounts.
But the allegations against trainers were not limited to false claims about trading profits. Together, the vigilante group obtained documents that allegedly expose discrepancies and incomplete data, specifically with regard to two popular YouTubers – ‘Ghyansham Tech’ and Abhishek Kar.
Mr Bandi alleges that Abhishek Kar lures investors to subscribe to higher-tier training programmes with the promise of better profits, but they end up losing heavily. He also triggered an uproar by offering to donate Rs2 lakh to any charity of Mr Kar’s choosing by way of apology if he could provide verifiable proof that he had ever made a profit on futures & options (F&O) trading in the past two years. Significantly, while Mr Kar’s blog claims that ‘he is one of the most followed writers globally on financial markets on Quora…” and has 1.5mn (million) social media followers. Mr Kar has locked his Twitter account and deleted several tweets and videos that had made profit claims. Clearly, an influencer with a locked account is a serious contradiction. He has also not responded to the challenge except to say he is a ‘YouTuber first’, nor has he responded to an email from me
Dozens of investors have now come forward to say they suffered losses after being lured by the promise of trading riches. One investor says he had to sell land to pay for the losses. Many investors have emailed me about a plethora of dubious practices and fake gurus that brazenly flout SEBI regulations. One openly provides very specific options, tips, and strategies during market hours, with a vague trading document on how to follow the advice. Others pool money, and trade is an illegal portfolio management service.
The SEBI Act mandates the regulator to protect investors. While it is true that no regulator can protect people from their follies caused by greed, gullibility and desperate hurry to make quick money, the anger generated by the exposé indicates that SEBI surely needs to step up action against false claims and flouting of regulations. This is all the more important because many of the YouTubers routinely sneer at the regulator in their videos and claim it is sleeping on the job. Maybe it is a not-so-subtle message to their flock not to worry about being caught since SEBI is incapable of regulating the business, let alone punishing wrongdoers.
Investors have emailed dozens of names of trainers who, they allege, have been faking profit claims, providing tips (in the guise of trading strategies) through Telegram groups and shirking responsibility for losses. Most of these can be investigated only by SEBI, which is empowered to call for records and initiate action. Hopefully, the regulator will start looking at these seriously.