The Securities and Exchange Board of India (SEBI) regulates the investment advisory sector in India through the SEBI (Investment Advisers) Regulations, 2013.
These regulations outline the conditions for registration, certification, capital adequacy, risk profiling and suitability, disclosures to be made, code of conduct, records to be maintained, and the manner of conducting inspections.
In India, it is mandatory for any person to obtain a certificate of registration from SEBI before acting as an investment adviser, unless an exemption specifically applies.
Illegal Investment Advice Cases
Case 1:
In recent years, SEBI has taken action against various entities and individuals for providing unregistered investment advice, frontrunning, and insider trading.
For instance, SEBI conducted multiple raids in Ahmedabad and other parts of Gujarat to nab those running the Telegram channel ‘Bull Run 2017’, which gave intra-day stock tips to around 52,000 subscribers, mainly retail investors.
SEBI found that creators or handlers of the Telegram channel first took positions in the stocks they recommended and then recommended them to others, a practice known as frontrunning.
Case 2:
In another case, SEBI issued an interim order against Himanshu Mahendrabhai Patel, Raj Mahendrabhai Patel, Jaydev Zala, Mahendrabhai Bechardas Patel, Kokilaben Mahendrabhai Patel, and Avaniben Kirankumar Patel for indulging in fraudulent and unfair trade practices.
SEBI investigations showed that Himanshu, Raj, and Jaydev gave recommended small cap stocks, whose price and volume was easily impacted.
SEBI Monitor Social Media
SEBI has also been monitoring social media platforms for possible insider trading violations. The ‘Whatsapp leaks’ case had sent shivers down the spine of the analyst community in 2017 when SEBI started looking into the matter.
SEBI had initiated a crackdown during which search and seizure operations against 26 entities of a WhatsApp group, among others, were conducted.
Baap of Chart
In 2023, SEBI called attention to Mohammad Nasiruddin Ansari aka Baap of Chart for providing unregistered investment advice under the garb of education. In an interim order dated October 25, SEBI stated that Nasir was inducing clients/investors by assuring profits/returns of a minimum INR 3,00,000 and further stated that upon payment for courses, Nasir would give dedicated support and guide everyone personally for live market transactions.
Cosmofeed
Cosmofeed, a Gurugram-based creator-focussed platform, has been found reaching out to influencers, who are not registered research analysts, offering them a space to sell stock ideas and trading calls. SEBI’s regulations allow only registered research analysts to provide investment advice, and such content-creator platforms are required to comply with these regulations.
Conclusion
In conclusion, providing illegal investment advice in India can lead to severe consequences, including regulatory action, penalties, and even criminal charges. It is essential for investment advisers to comply with SEBI’s regulations to ensure the integrity and transparency of the investment advisory sector in India.
