If you are on social media platforms like Telegram channels, Whatsapp, Facebook and Youtube looking for investing or trading tips, then by now you must have seen “buy”, “sell”, or “hold” recommendations on all these platforms.
You will also find “buy”, “sell”, or “hold” types of recommendations on financial websites.
Social media platforms nowadays create opportunities for different types of fraudsters. These people disseminate false information that looks real and credible to many people.
You will find many such gurus on social media platforms, financial websites and on television giving free advice to either buy, sell or hold a stock or a financial security.
Our suggestion is not to take any investment decisions based solely on information from social media platforms, SMSes, financial websites and mobile apps.
Before getting into the article on Indian Stock Market Scams, let us first clear the basics and know who can recommend buy, sell and hold calls in listed securities of the Indian stock market.
What are Buy, Sell, and Hold Ratings in the Stock market?
The term “Buy” means to purchase a specific security. Sometimes it’s also referred to as “strong buy”.
The term “Sell” means to sell a security. Also known as strong sell.
“Hold” means the security is expected to perform in line with the market.
In addition to the above terms, you will also come across two more terms in stock market recommendations, they are underperform and overperform.
Underperform means the security is expected to perform slightly worse than the overall market. It’s also referred to as underweight.
Outperform means the stock is expected to perform slightly better than the overall market. Outperform is also referred to as accumulate and overweight.
Who can recommend buy, sell or hold calls in the Indian stock market?
As per our current laws, no one can act as a research analyst or research entity or hold himself out as a research analyst unless he has obtained a certificate of registration from the Securities and Exchange Board of India (SEBI).
If a person who is located outside India is engaged in issuance of research report or research analysis in respect of securities listed or proposed to be listed on a stock exchange, shall enter into an agreement with a research analyst or research entity registered in India with SEBI.
Who is a research analyst?
A research analyst is a person who is primarily responsible for
- preparation or publication of the content of the research report; or
- providing research report; or
- making ‘buy / sell / hold’ recommendation; or
- giving price target; or
- offering an opinion concerning public offer,
with respect to securities that are listed or to be listed in a stock exchange, whether or not any such person has the job title of ‘research analyst’ and includes any other entities engaged in issuance of research report or research analysis.
If you find any person providing above services in India, then make sure that such person is a SEBI registered research analyst or investment advisor. If the entity or individual does not have SEBI registration, then they can not provide above services in India.
A research analyst studies companies and industries, analyses raw data, and makes forecasts or recommendations about whether to buy, hold or sell securities.
They analyse information to provide recommendations about investments in securities to their clients.
We have strict guidelines for a research analyst which specify certain conditions and things they can do and can’t. You can refer to SEBI (Research Analysts) Regulations, 2014.
One of such conditions is that a research analyst shall maintain the records either in physical or electronic form and preserve them for a minimum period of five years. These records must be audited by a member of the Institute of Chartered Accountants of India or Institute of Company Secretaries of India.
However, we have many people in India who give all types of stock market recommendations without any registration and knowledge of the market. Make sure that you don’t fall into their trap.
How social media is used to scam investors?
Nowadays retail investors rely on social media for information and trading tips.
Many scammers took this as an opportunity as social media allows them to contact a large number of people quickly without much effort.
Few fraudsters are sending emails or SMS pretending to be legitimate well known brokers or investment advisors. They are setting up accounts, names, profiles and SMS IDs using the real name and logos of the original broker or investment advisor.
In order to verify the genuineness of the email or SMS, you need to verify the source of information. Which is impossible for a retail trader or investor.
Many fraudsters post fabricated historical returns on their website and in social media platforms showing high investment returns.
As said earlier, anyone giving buy, sell and hold recommendations for free or with a fee should be registered with Securities and Exchange Board of India (SEBI). You can check for license and registration status of the fraudsters on SEBI’s website.
However, in certain cases, fraudsters may impersonate legitimate brokers or investment advisers. By checking the license and registration details you will not come to know who is behind it.
In order to protect your capital, you should not invest your hard earned money based on someone’s advice on social media or through an app.
You should not share any information relating to financial status, banking information, brokerage accounts information, login IDs and password, income tax details, credit card, Aadhaar, passport, driver’s license, birth-date, or any other sensitive information related to your personal finance.
If someone in social media is promoting unbelievable profits, then most likely it is that unbelievable.
Now let us look at some of the major Indian stock market scams to understand how scammers are using loopholes in our system to make money.
Indian stock market scams by using social media platforms
Popular social media platforms like Facebook, Twitter, Telegram, Whatsapp and YouTube are used by scammers in providing fake recommendations, unsolicited investment tips and misleading information.
The main objective is to carry out pump and dump activities.
Here is a list showing few techniques scammers follow to mislead market participants;
- Circulating forged investment opportunities and fake recommendations.
- Sending online investment ideas
- Posting screenshots of fake stock portfolio
- Asking a subscription fee to get stock recommendation or investment tips even though they are not authorised to do so.
- Creating fake profiles of renowned investors and offering guaranteed return and stock tips for a fee.
- Posting fake screenshots showing huge trading profits and asking viewers to either take their subscription or open a trading account with their given links. After opening a trading account by clicking on their given links, they will earn 20-30 percent of your brokerage as their commission for their entire life.
Below we have listed major Indian stock market scams to let you know how investors have lost their hard earned money by being a victim of scams.
Bullrun2017
Telegram channel “bullrun2017” / ” Bull Run Investment Educational Channel ” was providing 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 are majorly focused on small cap scripts.
The telegram channel bullrun2017 was promoted amongst the general public through various social media platforms like facebook, instagram.
In bullrun2017 telegram channel, stock recommendations to trade in various scrips are circulated promising high returns in a short time.
As per SEBI order, administrators of the Chanel use to buy shares in their own and family member’s trading accounts before issuing any recommendatory messages on the Whatsapp and Telegram Channel related to those shares.
After making such recommendations in the Channel, they use to sell the shares (previously purchased in his account and the family) either on the same day or in following days in small tranches by taking advantage of rising market price and in the process, they have made unlawful profits.
SEBI order very clearly states how these people have made profit by recommending stocks of Metro Global and Total Transport Sys Limited.
This type of stock market scam is known as pump and dump scheme.
In pump and dump schemes, after taking a buy position in certain selected stocks, these scammers entice others to take similar buy positions so as to cause a rise in price and volume in those selected stocks.
After a rise in market price, scammers used to successfully off-load the shares acquired by them earlier at inflated / manipulated prices to book substantial gains for themselves.
SEBI has restrained all the administrators Himanshu Mahendrabhai Patel, Raj Mahendrabhai Patel, Jaydev Zala, Mahendrabhai Bechardas Patel, Kokilaben Mahendrabhai Patel and Avaniben Kirankumar Patel from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders.
SEBI has also directed to deposit INR 2,84,29,948 (alleged unlawful gains) in an escrow account with Nationalised / Scheduled Commercial Bank accounts.
Baap of Chart
As per SEBI, Mohammad Nasiruddin Ansari was providing recommendations (buy/sell) through social media platforms like Twitter (now known as X), Instagram, WhatsApp and Telegram in the name of “Baap of Chart” in the garb of providing educational training related to the securities market.
Which means he was providing educational training on securities but was in fact, making stock market recommendations in a misleading manner.
Based on the examination carried out by SEBI, Mr Mohammad Nasiruddin Ansari has collected at least INR 17,20,76,616.09 (Rs 17.2 Crore) by such fraudulent and unregistered investment advisory activities.
SEBI discovered that between January 1, 2021, and July 7, 2023, Mr Ansari who claims to be making profit of 20% to 30%, has incurred a net trading loss amounting to nearly Rs 3 Crore.
SEBI has banned Mr Ansari and few of his associates from buying, selling, or dealing in securities, both directly and indirectly. They are also asked to deposit Rs 17.2 crore in an escrow account with a scheduled commercial bank.
Hanif Shekh
Hanif Shekh used to send bulk SMS by using two telecom operators BSNL and MTNL with buy recommendations on selected stock. SMS IDs are created like BT-ZROHDA and BT-ICISEC to mimic top stock brokers.
Hanif Shekh and his associates have used bulk SMSes, websites and social media platforms to circulate stock tips in order to attract gullible investors.
Prior to sending SMS, they used to artificially influence price and volume in stocks. When the underlying security reaches their target price, they dump their holdings through front entities.
This is considered to be one of the largest pump-and-dump stock market scams in recent years.
As per media report, Hanif Shekh is absconding from India and currently believed to be ensconced in Dubai.
Stock Market Manipulation
Stock market manipulation occurs when one or more market participants artificially affects the demand and supply of financial securities like stocks, crude oil contracts, commodities, currencies, bonds, futures and options causing stock prices to fall or rise dramatically.
Market manipulation is not legal. But, it’s very hard to detect and prove.
In general, stock market manipulation is done by engaging in a series of buy or sell transactions to show that a stock or a security is actively traded. Many scammers also spread false or misleading information about the financial market, companies or economy to move the stock prices up or down.
The main objective is to influence prices of stocks by misleading other market participants. Two known stock market manipulation techniques are the pump-and-dump and the poop-and-scoop.
Below we have listed two major Indian stock market scams which have crashed the market.
Harshad Mehta stock market Scam
In 1992, the Indian stock market collapsed due to stock market manipulation carried out by Harshad Shantilal Mehta. This stock market scam was popularly referred to as Harshad Mehta Scam.
This was the biggest Indian Stock market scam amounting to approximately Rs 4,000 Crores. This stock market scam was a significant disruption to the equity market in India.
Harshad Mehta was a registered broker who took advantage of loopholes in the banking system. Harshad Shantilal Mehta with the help of corrupt bank officials managed to arrange large amount of funds for buying stocks from the Indian stock market.
This massive buying in stocks once moved the BSE Sensex from 2000-mark to 4000-mark in 1992.
However, after a massive move in stocks, Harshad Mehta used to sell those shares at a significant profit.
In April 1992, when this scam was discovered, the BSE sensex collapsed more than 50% over the period of one year. This bear market lasted for 2 years.
Many investors who invested by seeing the market at new highs lost their hard earned money when the market collapsed. Banks realised that they were in possession of fake bank receipts given by Harshad Mehta.
Harsad Mehta died on December 31, 2001 from a heart attack in Thane, Maharashtra, India. He was on trial for 9 years.
Ketan Parekh stock market scam
In 2008, Ketan Parekh (KP) was convicted for involvement in the Indian stock market manipulation.
As per report, Ketan Parekh by using large sums of borrowed money from banks artificially rigged prices of certain selected securities, which informally referred to as K-10 stocks.
Funds were borrowed illegally from Ahmedabad based Madhavpura Mercantile Cooperative Bank and Global Trust Bank. They have also used to arrange funds from the company’s promoters.
They used a method called circular trading. He along with his associates conducted circular trading primarily in selected stocks in the IT, Media and telecom industry.
Mr Ketan Parekh along with other associates would buy large quantities of stocks in certain selected companies, with the help of circular trading when prices of those stocks skyrocket, they exit their position with huge amounts of profit. It’s a perfect example of a pump-and-dump stock market scam.
For instance, shares of Zee telefilms moved up from 127 to 10,000 rupees.
His K-10 stocks include Pentamedia Graphics, HFCL, GTL, Silverline Technologies, Ranbaxy, Zee Telefilms, Global Trust Bank, DSQ Software, Aftek Infosys and SSI.
Market named these stocks as K-10 because it was Ketan Parekh’s favourite stock.
Ketan Parekh (KP) acts like an operator who drives share prices with ulterior motives.
In 2001, when the market crashed, most of the market participants started dumping the K-10 stocks. After the 2001 union budget when the market crashed 176 points a day, SEBI and RBI began investigations.
SEBI after investigation, found Ketan Parekh and his front entities guilty of rigging share prices. SEBI banned Ketan Parekh from trading in the market till 2017.
In 2014, Ketan Parekh was sentenced to rigorous imprisonment for his role in syphoning public funds worth Rs 48 crore from a branch of Canara Bank during the 1992 scam.
Madhavpura Mercantile Cooperative Bank’s licence was cancelled by RBI in 2012. Global trust bank was merged to oriental bank of commerce in 2004.
In the Indian stock market, we have also seen corporate scandals where promoters and top management of the company misuse funds causing huge losses to investors.
Romance Scam
In Romance Scam fraudsters persuade victims to send them money allegedly to invest in forex, stocks or cryptocurrency.
First these fraudsters establish a good online relationship with the victim through social media platforms or a app. After getting the victim’s trust and confidence, they promote lucrative investment and trading ideas.
When the victim invests money in their investment ideas, they allow victims to withdraw a certain portion of money for gaining trust.
After investing a large amount of money they either block the account or ask them to send additional money for tax and fees. When the victim no longer pays any money, the fraudsters stop communicating and block their account.
In order to avoid these type of stock market scams, we suggest you do not share your trading account login credentials with anyone to trade on your behalf. Don’t go by stock tips that promise quick returns. Do your own research before trading or investing in the stock market.
Frequently asked questions – FAQs
What is Front-running?
In Front-running, a broker purchases or sells stocks for his own personal account before buying it for the clients or customers so as to benefit from the price movement that follows execution of large customer orders.
What is Tailgating?
In Tailgating, a broker or advisor buys specific stocks for a well known informed client and then immediately makes the same transaction in his personal account.
What is poop and scoop?
A group of informed people spread false information about a company to deflate the stock price. When they have successfully brought the prices down to a level, they purchase the stock at that bargain price to make profit at a higher level.
Poop and Scoop is also referred to as “Trash and Cash” or “slur and slurp” or “Short and Distort (Bear Raid)”
What is pump and dump?
In pump and dump, initial buying positions are created to spread misinformation or rumor to take the price higher. When prices moved higher due to buying activities of other misinformed buyers, these scammers used to sell their position with a huge profit. Pump and dump is a common illegal practice in the stock market. Social media platforms, SMSes and aaps are commonly used to spread misinformation.
Pump and dump is also known as “Long and Distort”.
Disclaimer: In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.
