Fraudsters could find a way around Sebi’s curbs on misleading ads, say experts

The market regulator’s advisory directing only verified intermediaries to publish advertisements on social media may not fully control the menace of misleading claims as fraudsters could still exploit loopholes, according to experts.

Despite the efforts by the Securities and Exchange Board of India (Sebi), fraudsters can still find ways to bypass regulations by setting up anonymous or offshore entities to operate outside the regulator’s jurisdiction, said Zubin Morris, a partner at law firm Little & Co.

“Some may misuse influencer marketing, where individuals indirectly promote unregulated investment schemes without directly violating Sebi’s rules,” said Morris. “Fake testimonials, exaggerated investment returns, and unofficial online investment groups remain major concerns, as they can still mislead investors.”

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On 21 March, Sebi issued an advisory directing all its registered intermediaries to verify their identities with social media platforms like Google and Meta before publishing advertisements.

The objective was to curb the use of digital platforms to entice victims with fabricated testimonials and by promising guaranteed risk-free returns under the guise of online trading courses or seminars on platforms including YouTube, Facebook, and Telegram.

Mint had reported on 30 September that stockbrokers had already begun cautioning investors against the growing menace of fake WhatsApp groups offering investment advice while impersonating registered entities.

Abans Financial Services Ltd warned on its website against fraudulent accounts impersonating the brand. Nirbhay Vassa, Abans’ group chief financial officer, said that several Sebi-registered intermediaries, like theirs, had been targeted by bad actors misusing their brand identity to mislead investors. “This is not an isolated issue—numerous regulated entities across the industry have faced similar impersonation and fraudulent schemes.”

Focused on content teams

With Sebi tightening its regulations on associations with financial influencers to curb misleading claims, Mint reported on 21 December that some of the country’s biggest trading platforms have increased focus on building their in-house content teams.

In several instances, unscrupulous elements uploaded videos and advertisements to entice investors to invest in securities with varying degrees of unverified content, occasionally accompanied by claims of exaggerated returns, said Sudhir Bassi, executive director at Khaitan & Co.

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“Many of these have been pump and dump operations, and investors have suffered losses. It is the average investors who end up losing,” Bassi said, adding that because such entities were not Sebi-registered, they could escape the regulatory framework.

It was difficult for Sebi to track the source of initial dissemination, he said. After grappling with this issue for a long time, Sebi issued the advisory as an additional step to “nip the menace in the bud.”

With help from Meta and Google, Sebi has already removed 70,000 unregistered digital financial advisors providing investment advice without approval, the regulator said at its latest board meeting on 24 March. “We are working with the Ministry of Electronics and Information Technology (MeitY) and otherwise with SMPPs – wherever Sebi has the power to do so, Sebi will take it down.”

Experts suggested stricter penalties and greater coordination with online platforms to detect and remove fraudulent content could address the risks.

“From a compliance standpoint, intermediaries will need to adopt stricter internal processes, vetting protocols, and content approval systems to meet the advisory’s requirements,” Vassa said.

Experts also advised investors to exercise caution and take responsibility by cross-checking intermediary details through Sebi’s official channels before making financial decisions based on online advertisements.

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