Sebi must rein in finfluencers

The weapons of financial deception may have evolved, but the script remains drearily familiar: misinformation, manipulation, and a trail of burned retail investors.

- SANDEEP PAREKH

The Securities and Exchange Board of India (Sebi) recently passed an order in the pump-and-dump case involving Sadhna Broadcast Limited (SBL), shedding light on how digital platforms are now central to such schemes. Today's con artists have swapped cold calls and call centers for content creators and clickbait thumbnails, with the result that their reach has grown exponentially.

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.