Stock tips via Telegram: Why has SEBI banned three people from accessing the markets?

What was the modus operandi?

Both Patel brothers used to purchase specific stocks through their own trading accounts as well as the trading accounts of their family members named Mahendrabhai Bechardas Patel, Kokilaben Mahendrabhai Patel and Avaniben Kirankumar Patel. Zala, a friend of Raj, was also involved in the same business.

After purchasing stocks of specific companies, the three men used to circulate messages in the Telegram channel named @bullrun2017, recommending other subscribers to buy those specific shares without disclosing their own interest and intent to sell the stocks instead.

Subsequently, contrary to their own recommendations, the trio used to sell their stocks at inflated prices to unsuspecting investors who had followed their advice, thereby booking unlawful profits. They carried out the same process in different scrips on a routine basis between January 1, 2021 to November 12, 2021, as per Sebi’s investigation.

The market regulator, in its investigation, found out that Patel brothers and Zala booked a total profit of Rs 2.84 crore by engaging in the fraudulent scheme repeatedly on several days in multiple scrips. Mahendrabhai, Kokilaben and Avaniben also received the unlawful profits from the scheme, it said.

What is the action taken by Sebi?

Sebi has imposed a penalty of Rs 5.68 crore, which is twice the total unlawful gains made (Rs 2.84 crore), on Patel brothers and Zala. The market regulator has levied a penalty of Rs 5 lakh each on Mahendrabhai, Kokilaben and Avaniben.

The Patel family and Zala have been asked to deposit the entire Rs 2.84 crore gained unlawfully with simple interest of 12 per cent per annum from November 12, 2021 to the Investor Protection and Education Fund (IPEF) of Sebi. Of this, they have already deposited Rs 98.84 lakh in an escrow account as directed by Sebi earlier. They will have to disgorge the interest on the unlawful gains already deposited i.e Rs 98.84 lakh calculated with simple interest of 12 per cent per annum from November 12, 2021.

Besides, Sebi has restrained Patel brothers and Zala from accessing the securities market. They are prohibited from buying, selling or otherwise dealing in the securities market, directly or indirectly in any manner for three years from the date of payment of illegally gained amount.

The regulator said Mahendrabhai, Kokilaben and Avaniben did not have a role in issuing the stock buying messages. However, the trio did not act in a prudent manner as they allowed using their trading accounts to execute the trades which formed a part of this manipulative scheme.

Mahendrabhai, Kokilaben and Avaniben have also been restrained from accessing the securities market for 1 year after the payment of wrongful gains.

What was the Telegram channel about?

The description of the Telegram Channel @bullrun2017 read: “We are team of 4 Research Analysts with combined experience of 40 years. All calls are for study purpose only. Taking any trade consultant your financial advisor. We are in the process of getting SEBI Research Analyst Registration.”

It provided recommendations to its subscribers for trading in both cash as well as derivatives segments, for both intra-day as well as positional trades. The recommendations issued with respect to the cash segment were majorly focused on small cap scrips. The channel was promoted through Facebook, WhatsApp, Instagram, etc.

Sebi found that the channel had more than 49,000 subscribers, as of January 12, 2022.

Growing concerns around finfluencers

Recently Finance Minister Nirmala Sitharaman asked investors to exercise caution while following the advice of financial influencers or finfluencers.

The capital market regulator is also working on guidelines for financial influencers who give advice to stock investors on various social media platforms like Twitter, Youtube, Telegram, Instagram and Facebook. It recently announced advertisement guidelines to stop misleading advertising by investment advisers and research analysts.