Stock tip peddlers on social media platforms are under the scanner of market regulator SEBI, which is working on tightening the noose around these unsolicited advisors.

SK Mohanty, SEBI whole-time member, said on Thursday that the regulator will soon come out with guidelines for financial influencers, usually referred to as fin-fluencers, who give stock advice on social media platforms.

Mohanty said stock tips were flowing on social media sans regulations. YouTube channels and social media handles have mushroomed in the past few years with millions of followers. In fact, SEBI has even cracked down on those indulging in manipulation through stock tips on Telegram and WhatsApp, but the regulator has so far lacked any effective regulations.

In March this year, SEBI had unearthed a major racket of stock price manipulation through the use of social media and chatting apps. SEBI had also carried out search and seizure operations at the premises of seven individuals and one entity at multiple locations in Ahmedabad and Bhavnagar in Gujarat, Neemuch in Madhya Pradesh, New Delhi and Mumbai.

Dealing with fraud

In its guidelines, SEBI will make it mandatory for social media influencers to register and make them follow most of the other norms that are applicable to the registered financial advisors. Mohanty, who was a guest speaker at the Kroll-CII National Conference on ‘Corporate Frauds: Governance and Risk Management’ held in Mumbai, also said SEBI has been constantly enhancing its technology and surveillance prowess.

“It (fraud) is a menace that we are facing and the regulator is doing what it has to do, constantly updating itself in terms of technology and surveillance,” Mohanty said.

Mohanty grumbled about how related party transactions (RPTs) were the most commonly used mechanism by listed companies to commit fraud. “RPTs is one of their most favourite modus operandi, which gives a lot of scope to people to commit frauds... Predetermined credit risk or default risk has been taken over a period of time and meanwhile, the promoter is divesting his shares. Corporate guarantees, diversion of funds through subsidiaries and loans to entities linked to promoters are also ways in which frauds are perpetrated. Fake transactions to inflate sales and expenditure is another great method of showing off that you are doing well,” Mohanty said.

He added that several listed company promoters were bullying independent directors to get a particular person of their choice on board. “SEBI plugged a regulatory gap by bringing in a rule that any reappointment of a director who has been rejected earlier by shareholders can happen only after prior approval of the shareholders,” he said.