No Regulations + Lenient Punishments = Rising Stock Market Frauds

Juxtapose the post-pandemic prosperity of the Indian capital markets and the unprecedented growth of retail participation in financial markets; the expected picture is that of a thriving retail cohort. However, in the wake of financial frauds plaguing the market, it's the retail investors who have become the fodder for crooks that are minting profits by manipulating the market through their mass media clout.

The burgeoning tribe of financial influencers aka ‘Finfluencers’ on social media and the constellation of the ‘Guest Experts’ and ‘Anchors’ who reign on business channels are being repeatedly found embroiled in stock market related frauds.

The recent case of alleged market manipulation and defrauding the masses to earn unfair profits from the market by five ‘Guest Experts’ on Zee Business Hindi points to a similar modus operandi used a few years ago by a few other employees of a business channel by markets Editor Pradeep Pandya; former anchor, Hemant Ghai; and former Guest Expert, Alpesh Furiya to mint illicit profits. Even as the past cases await final judgement, newer instances of abuse of media power, which makes them influence millions of people within minutes, are increasing at an alarming pace.

Checks and balances:

Because of their appearance on channels, market manipulators have been able to win the trust of the public. As evident from public records, SEBI has not asked the channels where personalities were involved in market manipulations the procedure of appointing such guest experts or employees? Or, whether there are checks and balances to keep their direct and indirect employees from engaging in malpractices. A questionnaire sent to SEBI remains unanswered.

A questionnaire sent by Fortune India to business channels enquired about the criteria of selection of TV guests (independent experts). The questionnaire also asked whether there is a practice of evaluating ‘trading calls’ given by these experts and whether any official from the organisation analyses their performance. Fortune India also enquired if there are ongoing SEBI investigations against any past or present anchors, reporters, or guest experts. Fortune India awaits responses.

Criminal investigation of stock market scams:

So far, in all the cases above, SEBI has not cancelled the registration of any of the offenders. None of them have faced any penalty because disgorging the unlawfully gained profit is not a penalty. None of the offenders have been even charged of any crimes against the public at large. SEBI is a regulatory body whose adjudicatory power is limited to civil law, but it is well within the ambit of SEBI to involve criminal investigation authorities and charge these market manipulators of fraud against the public. As per law, even a petty thief causing financial damage to any person is booked under criminal charges but white-collar criminals who have duped the public of crores of rupees could go scot-free after returning the wrongful gains as estimated by SEBI.

A case in point is Hemant Ghai, who was nabbed by SEBI in January 2021. Hemant had approached the SEBI Appellate Tribunal in March 2022 and contested the restrain put on him, for an unspecified time, that barred him from giving financial advice etc., citing that it hampered with his fundamental right to livelihood under Article 19 (1)(g) of Indian Constitution. As per a news release published on Afaqs on December 1, 2022, another Hindi news channel appointed Hemant Ghai as News Director, Stocks, General Market & Business Segment. Bharat Express is a Hindi news channel that operates through both satellite and digital network. Hence, despite being caught as an alleged market manipulator, Hemant Ghai continued to be active in media and did, relatively, the same kind of work that he was doing at his previous employer. Ironically, the citizens of India also have the fundamental right to receive fair information from media personalities under Article 19(1)(a) of the Constitution. The question is, does this fundamental right of common people not include barring proven offenders from holding positions of power within media organisations that provide public information about the stock market?

There exist no criteria or qualifications to become an ‘Expert Guest’ on TV. Veterans from the market say that with the advent of social media, channels are keener to host finfluencers who already have a large following, and it does not matter whether they are SEBI Registered Investment Advisors (RIAs) or not. Indeed, one of the Guest Experts of Zee Business (Hindi) identified by Sebi, Mudit Goyal, was not even a SEBI Registered Investment Advisor (RIA).

Inordinate delays in criminalising market frauds:

As per records, delayed justice served with dollops of leniency encourages manipulators who enjoy long periods of wealth and luxury till the time a judicial order is served against them.

Even then, the only potent arsenal SEBI has is levying a hefty fine on them, which it uses extremely sparingly. Besides, among financial experts there is no fear of their SEBI Registration getting cancelled because thousands of Finfluencers and so-called market experts are thriving in their practice even without registration. Various market sources put the number of SEBI Registered Investment Advisor (RIAs) in India at less than 1,500 by the end of 2023.

With about 14 crore demat account holders and growing, India's financial market has witnessed unprecedented growth since 2020 but the number of SEBI Registered Investment Advisors remained stagnant. It is counterintuitive that the number of financial advisors is not increasing when consumers of financial services have grown 350% since the pandemic. The fact remains that while self-proclaimed financial experts have mushroomed, only fraction of them have registered with SEBI as investment advisors. The norms for registering as an investment advisor are stringent and elaborate, but practicing as an unregistered financial advisor attracts little or no penalty, encouraging the trend.

Lack of regulations coupled with lax penalty and prolonged process of adjudication, which does not even involve the organisations that provide mass-media platforms to manipulators, have together made market manipulation an easy game. And with the number of gullible retail investors skyrocketing, stock markets represent a fertile ecosystem that promote slaughtering of lambs for unlawful gains of the predators rife in the market.

The case of guest experts of Zee Business (Hindi) allegedly manipulating the stock market:

In the most recent case, five ‘guest experts’ of Zee Business Hindi News Channel have been convicted by SEBI for illegal activities including alleged stock market manipulation, fraud, and profiting from the stock market using unfair means. The ‘guest experts’ Simi Bhaumik, Kiran Jadhav, Ashish Kelkar, Himanshu Gupta, and Mudit Goyal worked in collusion with traders Nirmal Soni and Partha Sarathy Dhar (Simi’s husband). SEBI has unearthed 1,047 instances of stock manipulations by this group between February 1, 2022, and December 31, 2022, that made them a total profit of over ₹7.41 crore.

The shows that these ‘guest experts’ conducted on Zee Business (Hindi) were Simi Ke Non-Stop Shares, by Simi Bhaumik; Kiran Ka Kamaal by Kiran Jadhav and Ashish Kelkar; ‘Hitman Himanshu’ by Himanshu Gupta; Mudit Ke Munafe by Mudit Goel.

SEBI has barred these entities from dealing in the securities market and banned them from giving any advice related to secutiries. Even though these perpetrators have also been asked to disgorge the monies made through fraudulent means by SEBI nor their SEBI registrations have been cancelled. No pecuniary penalty has been levied on the channel so far either.

Under Section 15HA of the SEBI Act, if any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty of at least five lakh rupees but may go up to 25 crore rupees or three times the amount of profits made from the practices, whichever is higher.

How past employees and anchors manipulated the stock market:

Two serious cases of stock manipulation and fraudulent profiteering from another prominent business channel were investigated by SEBI. The first was Hemant Ghai who co-hosted the show Stock 20-20, while the other one concerned the then markets editor of the channel, Pradeep Pandya, in nexus with Alpesh Furiya, a ‘guest expert’. The interim order, in both cases, was issued by none other than the current SEBI Chief, Madhabi Puri Buch, who was the whole time member of SEBI at that time.

On January 13, 2021 the first interim order against the Ghai was issued that involved impounding the unlawful gains of ₹2,95,18,680, restraining Hemant Ghai, along with his wife and mother, from dealing in securities, and barring Hemant Ghai from investment advisory et al. After contesting the order, Hemant and family coughed up the amount impounded by SEBI.

The other case was exposed on October 4, 2021, when the interim order was issued against Pradeep Pandya, Alpesh Furiya, and others who had made illicit profits of about ₹8.38 crore by allegedly defrauding the public and manipulating the market. The modus operandi of these cases was the same as that of Zee Business’ guest experts.