Co-authored with Aniket Singh Charan and Yash Vardhan, associates, Finsec Law Advisors.
Mandating that exchanges fully relinquish control may be a problem rather than a solution. A more market-driven approach, informed by commercial viability, systemic risk, and public interest, may offer a better path forward. After all, institutional resilience depends not just on who owns the system, but on who is accountable when it is tested. Ideally, neither a minimum nor maximum ownership should be prescribed and it should be left to the market to decide which model to adopt. Clearing corporations should, of course, be very intrusively regulated and supervised and be run more as a utility. Finally, it would be a unwieldy for one regulator to supervise the clearing corporation which is otherwise regulated and understood by another. Recall what Socrates said.
A pump-and-dump scheme involves artificially inflating the price of a stock using false or misleading information, only for manipulators to sell off their holdings at the peak, leaving retail investors with steep losses. In the SBL affair, SEBI uncovered an orchestrated campaign of circular trading and deceptive YouTube videos, with a scripted price action.
It began with promoters and related entities engaging in circular trading — essentially tossing the stock back and forth among themselves to create the illusion of market activity. With SBL’s shares suffering from low liquidity, even small volumes could cause large price movements. Enter stage left: the “finfluencers”. YouTube videos, peddled by certain notices, promoted SBL as the next multi-bagger, dressed up in the language of financial literacy but dripping with hype and half-truths.
Retail investors, seduced by visions of quick returns and slick presentations, poured in. The exit liquidity provided by their enthusiasm allowed the manipulators to “dump” their shares with perfect timing — a wolf in sheep’s clothing disguised as a financial guru.
SEBI’s order in the SBL case connected the dots between price manipulation, paid digital promotions, and the orchestrated dump of shares. The regulator ordered disgorgement, imposed monetary penalties, and barred several individuals and entities from the market. These measures send a strong message that such conduct will not go unpunished. However, such regulatory actions are remedial and retrospective by their nature
Not long ago, these schemes lived in the shadows of boiler rooms and SMS spam campaigns. Their reach was limited by manpower and mobile networks. The digital ecosystem, however, lets financial misinformation scale with frightening ease. Finfluencers — part educator, part entertainer, and occasionally part illusionist — now command audiences in the millions, often with little more than a Wi-Fi signal and an alarming degree of confidence.
It is therefore pertinent to note that in an age where pump-and-dump schemes are amplified by finfluencers and social media campaigns, ex-post facto enforcement is necessary but not sufficient. SEBI’s task is undoubtedly difficult. The primary challenge in regulating such platforms and content lies in distinguishing financial literacy content from investment advice. The distinction between the two often collapses when creators promise guaranteed returns or package unverified claims as credible investment ideas. Similarly, it is important to preserve free speech and distinguishing it from investment advice can be hard. Imagine if all stock-specific views were considered investment advice, then an Indian Warren Buffett talking about Coke as a great investment with great potential would be considered illegal.
SEBI has attempted to regulate this space by imposing obligations primarily on registered intermediaries and regulated entities to verify their identities with online platforms before publishing investment-related advertisements — where it has in fact gone too far in over-regulating. The intent here is to curb fraudulent promotions and ensure only verified entities publish financial content. Furthermore, SEBI has issued directives restricting the nature of content that can be disseminated. For instance, a circular prohibits finfluencers from using live stock prices in their educational content, mandating instead the use of price data that is at least three months old. This is intended to prevent “educational” platforms from being subtly used to provide time-sensitive, unregistered investment advice. Regulators globally agree on preventing publication of unregulated financial content online.
We are not unsympathetic to the challenges faced by SEBI in this task, particularly in regulating the distribution of such content through encrypted platforms like WhatsApp and Telegram. However, with respect to other non-encrypted social media platforms such as YouTube and X, there is a growing consensus that they must assume greater responsibility for the financial content they host. This includes implementing robust and proactive mechanisms for identifying, flagging, and removing misleading or fraudulent financial promotions. In India, the Information Technology Act, 2000, provides a “safe harbour” to intermediaries (social media platforms in this case), absolving them from liability for third-party content hosted on their platforms, provided they comply with prescribed due diligence requirements. In this regard, while SEBI has undertaken consultations with such platforms, there is a need to prescribe a formal and public mechanism for faster takedown of content that is violative of laws, clearer definitions of harmful financial promotion, stricter verification procedures and due diligence thresholds for paid financial promotions and marketing campaigns, and formal cooperation between platforms and financial regulators.
Ultimately, the strongest line of defence is an informed investor. Regulatory frameworks, platform accountability, and enforcement actions must be complemented by financial literacy efforts that teach scepticism as much as strategy. How often does anyone walk up to you in a marketplace handing over Rs 500 notes? It is almost as probable that anyone would give you free advice on the internet or other channels on how to find underpriced assets. We live in a financial ecosystem where every smartphone is a trading terminal, and every influencer a potential advisor.
But the problem is deeper than mere manipulation — it’s one of trust. Retail investors are increasingly relying on internet personalities rather than regulated advisors, not because they are foolish but because the former speak in plain English, not financial Esperanto. The accessibility and relatability of finfluencers give them credibility, sometimes more than the institutions themselves. This is both a strength and a danger.
Moreover, the monetisation model of these platforms is complicit. Algorithms that reward engagement do not pause to verify the truth. A video hyping a penny stock might receive ten times the traction of a cautious explainer on index funds. The system is tilted in favour of the loud, not the learned. In essence, we need a modern-day financial Hippocratic Oath for those dispensing advice — first, do no harm. Until then, perhaps investors would do well to remember: not every “expert” with a ring light and a YouTube channel is looking out for your wealth. Sometimes, they’re just chasing theirs.
