Sebi relies on old tricks to nab new-age crooks in the act

The illegal tip market that used to work on SMS and voice calls has over the years shifted entirely to secured platforms like Telegram and Signal due to enhanced surveillance. Now, Sebi cannot gain access to chats on such encrypted platforms since these platforms do not share any information with regulators.

In order to overcome this hurdle, Sebi, through some proxies, has started joining these groups to keep tabs on the tips being shared. While some of these stock tip groups are free for anyone to join, there are others which charge as much as ₹20,000 as membership fees.

The development comes as illegal stock tips over such platforms has become a grave concern for the market regulator with several gullible investors falling prey.

Typically, these groups either work at the behest of the promoter of a listed company to pump up share prices or they take contrarian positions in the market before giving tips. Suppose, if these entities are giving a buy order on the stock, the sell side book comes from entities related to the tipper. This modus operandi typically succeeds in smaller stocks where the volumes are thin and therefore easier to manipulate.

An email sent to Sebi spok-esperson remained unanswered till the time of going to press.

“Sebi has been receiving many complaints from the retail investors regarding such fraudulent tips and in some cases the complainants are helping Sebi to gain access to these groups for surveillance,” said one of the persons cited above. “Evidence is key in such cases, hence before cracking down, Sebi needs to gather sufficient data to prove wrongdoing.”

The stock exchanges, which act as first-level regulators, are also aiding Sebi’s efforts to crack down on illegal market tips. People cited above said exchanges were running schemes akin to mystery shopping. For instance, a third party goes to one such Telegram group posing as a client and pays the requisite fee. The task of this third party is to spot any stock market violations by the intermediary. It could not be ascertained if Sebi and the exchanges pay the third parties to conduct such operations.

So far, Sebi has issued three major orders in cases pertaining to illegal stock tips over Telegram and all of them were based on tips received by the regulator. This is in contrast to other cases Sebi investigates where its internal systems and the exchanges generate alerts about potential wrongdoings.

“Sebi, in a way, is using all the old techniques to crack such cases. Once they are confident that manipulation is happening in a particular group, they conduct raids and recover the phones registered with the messaging platforms. Once they have the devices, they use advanced forensic software to recover all the data which forms the evidence,” said the second person cited above.

Not just Sebi, the evolution of technology has become a major hurdle for securities market regulators across the world. However, in some countries, market regulators get additional powers to deal with such situations. For instance, the US market regulator Securities and Exchange Commission (SEC) has powers to intercept all calls for surveillance. In India too, Sebi requested for similar powers from the government, however, the request was declined.