Social Media Scams: SEBI Warns of Financial Scams on Social Media

The Securities and Exchange Board of India has woken up to the rampant misuse of social media platforms for fraudulent investment activities. With the rise in digital connectivity, social media has become a conduit for scams. Social media scandals are rampant on YouTube, Facebook, WhatsApp, and Telegram, taking away the unsuspecting Indian investor's hard-earned money. SEBI's recent advisories convey the urgency of curbing these frauds damaging the financial health of so many.

According to a Bloomberg report, last year over 150,000 people were victims of stock fraud, making it the highest figure ever recorded in India. The report also refers to government data saying that in 2024 there were more than 400 stock-market-related scam instances every single day, summing up the loss to $1 billion. So far, not even 10% of that amount has been recovered.

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“With increasing adoption of digital communication platforms, it is observed that scammers are enticing victims by giving trading calls in the name of providing education. They also provide misleading or deceptive testimonials, promises, or guarantees of assured or risk-free returns, etc., through various SMPs,” said SEBI.

This article delves into these deceptive practices, offering insights into their mechanisms and guidance on safeguarding oneself. Against this development and to protect investor interest, SEBI has highlighted four common types of fraud relating to the securities market through social media platforms.

1. Impersonation of SEBI-Registered Entities

An increasingly common strategy sees fraudsters posing as intermediaries registered with SEBI or claiming to be associates of Foreign Portfolio Investors (FPIs). These imposters establish fake groups on platforms such as WhatsApp and Telegram, claiming to offer exclusive trading opportunities through institutional accounts. They lure investors by promising privileged access to stock markets, often bypassing the need for official trading or demat accounts.​

SEBI has clarified that such schemes are fraudulent. There is no provision for 'institutional accounts' that allow direct market access without proper registration. Investors should exercise caution and confirm the authenticity of any organization asserting a connection with SEBI or Foreign Portfolio Investors (FPIs).

2. Proliferation of Fake Investment Groups and Advertisements

From January to June 2024, cybersecurity company CloudSEK identified over 29,000 misleading investment ads on Facebook and more than 81,000 fraudulent investment groups operating on WhatsApp. These groups often impersonate respectable financial institutions that lure users with attractive promises of high returns and fake proof of earnings.​

Once the victims are lulled into a false sense of security, they are urged to make investments, only for the group to disappear and their funds to vanish. The combination of the scams' sophistication and the social-media-aided outreach only increases their caliber and efficacy, demanding caution from the users.

3. Exploitation of Personal Data for Targeted Scams

Phishing scammers bank on the underground illegal trade that has sprouted up alongside the legitimate market for personal information. According to reports, personal details, including phone numbers and names, are sold systemically, going for low rates such as $100 for 10,000 entries. Such data enables a scammer to formulate targeted messages to make the scam more convincing.​

It is common for victims to receive spam messages or unsolicited calls with what appear to be legitimate investment opportunities. This is further compounded by the personalized nature of the communications because they are able to target the higher probabilities of an individual falling into a trap.

4. Dissemination of Misleading Financial Content by 'Finfluencers'

The rise of financial influencers, or 'finfluencers,' has added another layer to the problem. SEBI has flagged nearly 9,000 instances of unlawful or misleading content related to securities markets on social media. These individuals, often lacking proper credentials, dispense investment advice that can lead to significant financial losses for their followers.​

In response, SEBI has introduced regulations prohibiting regulated entities from associating with unregistered finfluencers. Social media platforms have been urged to take legal action against accounts spreading false financial information.​

SEBI's Proactive Measures

To combat these challenges, SEBI has implemented several strategies:​

• Advertisers, Take Note: If you’re an intermediary looking to run ads on social media, you now have to register through SEBI’s portal using your official email and mobile number. No shortcuts here.
• Platforms Have Homework Too: Social media platforms aren’t off the hook. Before they let you post ads, they’ll need to double-check your registration with SEBI first.
• SEBI’s Got Its Eyes Open: To crack down on shady financial advice online, SEBI has asked the government for more power, like being able to take down unauthorized content and access call records during investigations into market rule-breaking.
• Spreading the Word: SEBI’s not just playing watchdog. It’s also stepping up its investor education game. Working with stock exchanges and depositories, they’ve held over 43,000 sessions in 687 districts, reaching close to 2.8 million people. That’s some serious outreach.

Protective Measures for Investors

Investors can safeguard themselves by adhering to the following guidelines:​

• Double-Check Their Credentials: Before trusting any broker or financial advisor, make sure they’re actually registered with SEBI. Use SEBI’s official tools; don’t just take their word for it.
• Think Twice About Random Investment Tips: Getting a message or call out of the blue offering "guaranteed returns"? That’s a major red flag. Genuine investments carry inherent risks. So if an offer seems too good to be true, it most likely is.
• See Something Sketchy? Say Something: If you come across shady groups, spammy messages, or anything that feels off, report it. SEBI and law enforcement need your help to keep things clean.
• Knowledge Is Your Best Tool: Don’t just rely on luck; stay informed. Join investor education sessions and keep an eye on the latest SEBI updates. A little awareness can save you a lot of trouble.

Conclusion

The digital world has made financial services faster and more convenient than ever, but it’s also given scammers new ways to target people. SEBI is stepping up with strong measures to fight back against these frauds.

Still, it’s not just up to the regulators. Investors need to stay alert too. The more you know and the more careful you are, the better your chances of avoiding these clever scams.

Stay sharp, stay informed; that’s your best defense.