SEBI: Spreading False Information via Telegram and WhatsApp causes Irreparable Damage to the Integrity of Securities Market

SEBI: Spreading False Information via Telegram and WhatsApp causes Irreparable Damage to the Integrity of Securities Market

The Securities Exchange Board of India (in short SEBI) has barred 19 entities from the securities market for carrying out fraudulent trading activities in the shares of Superior Finlease Ltd. (for short SFL) and stored unlawful gains amounting to Rs. 3.89 crore.

The investigation led by SEBI collected various pieces of evidence substantiating the fraudulent activities of these traders and such evidence were largely found from the sources, such as oath statements, bank account statements, trade details, call data records, audio call recordings and WhatsApp chats.

In the present case, shares of SFL were initially purchased from the trading platform and subsequently, with the help of the persons operating Telegram Channels, a false recommendation message to buy shares of SFL was floated on such channels, thus inducing the subscribers there to buy the shares of SFL.

A complaint was received by SEBI alleging inter alia that stock recommendation tips were being disseminated through Telegram Channel under the name "Intraday trading equity stock." Based on a preliminary examination, two Telegram Channels, viz., "Intraday trading equity stock" and "Intraday Share Trading Equity Stock" were identified by SEBI as suspected channels through which stock recommendation tips are being disseminated.

SEBI in its order discovered that in the whole process, the shares owned by the offender of the scheme through his entities were dumped and huge profits were earned.

The SEBI in its order stated, "any person indulging in spreading mis-information or false and misleading information through the use of social media messaging applications like Telegram, WhatsApp etc., which are being used by millions of people can cause irreparable damage to the integrity of the securities market within a short span of time like a forest fire, thereby eroding the confidence of the investors in the securities market in a matter of no time."

The market regulator prima facie, found the accrual of large amounts of unlawful profits to the accounts of 14 entities whom the rest of other 5 entities had facilitated and enabled to earn such unlawful gains in their trading accounts which therefore renders, all the entities jointly and severally responsible for generation of those unlawful gains during the period prior to as well as on the day of stock recommendation, as the entire insidious scheme was put to action by each of the entities by meticulously playing their respective roles as part of an intricately woven scheme.

It noted that the amount of unlawful gains of Rs 2.13 crore earned during the period of 1st February, 2021 to 13th September, 2021, by manipulating the share price of SFL and an amount of unlawful gains of Rs. 1.75 crore generated by way of dumping the shares of SFL on the recommendation day- 14th September, 2021.

The single member, S.K. Mohanty (Whole Time Member) was of the considered view in the interest of the investors of the securities market, and in consonance with the object and statutory mandate of the Securities Exchange Board of India, Act 1992 (in short SEBI Act, 1992), necessary directions for impounding the unlawful gains were required to be passed against the entities.

The Board deemed fit to refer the observations of the Hon'ble SAT passed in the matter of Amalendu Mukherjee Vs. SEBI (2020), wherein the Hon'ble Tribunal had underscored the necessity of passing impounding orders by inter alia observing as, "we are of the opinion that the Whole Time Member is empowered under the SEBI Act and the Regulations to pass an ex-parte order in order to protect the interests of securities market and the investors. If such impounding order is not passed, it may result in defeating the ultimate direction of disgorgement if any, as there would be chances of such monies being dissipated by the appellant."

It noted that the amount of unlawful gains of Rs 2.13 crore earned during the period of February 01, 2021, to September 13, 2021, by manipulating the share price of SFL and an amount of unlawful gains of Rs 1.75 crore generated by way of dumping the shares of SFL on the recommendation day 14th September, 2021.

Accordingly, SEBI imposed Rs. 3.89 crore collectively and severally from these entities and directed, "all the entities (19) are restrained from buying, selling, or dealing insecurities, either directly or indirectly, in any manner whatsoever until further orders."

Further, they have been ordered not to dispose of any assets except with the prior permission of Sebi until the impounded amount is deposited in the escrow account.