Finfluencers are under the radar of the market regulator again as SEBI, vide its order dated October 25, 2023 has taken action against Mohammad Nasiruddin Ansari (Nasir), a Hyderabad-based finfluencer and owner of proprietorship firm Baap of Chart (BoC). SEBI barred Nasir and six other cohorts from buying, selling, or dealing in the securities market and also ordered Nasir to disgorge an amount of Rs 17.2 crore which he had made by carrying out investment advisory activities that are both unregistered and fraudulent.
SEBI, in its order, observed that Nasir has induced/influenced investors to deal in securities through misleading information and indulged in unregistered investment advisory (IA) activities under the garb of providing educational courses.
Background
Nasir, operating as the sole proprietor of BoC, promoted himself as a stock market expert on various social media platforms. Several retail investors enrolled in his 'educational courses' through which he influenced them to invest in the securities market by promising near-certain profits. Nasir provided these courses on an ed-tech platform hosted by Bunch Microtechnologies Private Limited (Bunch), which facilitated the collection of fees from retail investors and granted them access to his classes. He also engaged in providing buy/sell recommendations in private groups to his clients.
The examination of Nasir revealed that his YouTube channel has over 4.43 lakh subscribers and 7 crore views, with videos promising quick and consistent trading returns. He also manages a Telegram channel with 53,000 subscribers, an Instagram account with 59,000 followers and a Twitter account with 78,000 followers, where he promotes trading strategies and courses that claim to guarantee profits. The investigation found that Nasir was enticing individuals to subscribe to his 'educational courses' in exchange for subscription fees with the promise of guaranteed profit, suggesting he was providing IA services for consideration, potentially misleading investors about the inherent risks in the securities market.
SEBI, in its examination, observed that Nasir, who had portrayed himself as a stock market expert, had in reality incurred a significant net trading loss of INR 2.89 crores, contrary to the claims of his strategy of assured and guaranteed returns. It was observed that Nasir did not reveal his own losses and trading activities while giving trading calls which promised assured and guaranteed returns. SEBI concluded that such misrepresentation potentially misled investors, inducing them to invest based on false claims, as his own trading history contradicted the promises he had made.
SEBI's Order cum Show Cause Notice
SEBI, in its investigation to ascertain whether Nasir's activities constituted investment advisory services conducted a comprehensive investigation, exhaustively scrutinizing information available on Nasir's Twitter account, YouTube channel, Telegram, and WhatsApp. The finfluencer was found to be giving direct buy/ sell/ hold recommendations in securities on social media platforms without holding the necessary registration. SEBI held that inducing people to deal or trade in securities promising them the prospect of making profits with near certainty would amount to 'investment advice'. The order also observed that the use of disclaimers on websites cannot serve as a safeguard against legal consequences when individuals or entities are found to be involved in activities that violate existing regulations.
SEBI passed an interim ex-parte order that directed the individuals involved to cease unregistered IA activities, imposing restrictions on trading securities and impounding illegal gains. Furthermore, any IA materials available in the public domain were directed to be withdrawn until further orders.
The order observed that the impugned activity of inducing individuals to invest on the basis of misleading claims is fraudulent, as investment advice is being provided under the guise of 'educational courses' to mask its illegality. The examination revealed that a substantial amount, at least INR 17.2 crores, was collected through these fraudulent and unregistered IA activities.
Conclusion
The order clearly reflects the regulator's intent to take action against unregistered IA activities, particularly when it is carried out by individuals who present themselves as market experts with a substantial social media following. SEBI's action against Nasir is not an isolated case. In June this year, PR Sundar, another financial influencer, faced SEBI's scrutiny for engaging in unregistered investment advisory services through Telegram groups. As part of the settlement, Sundar agreed to pay a total amount of ₹46.80 lakh and disgorge ₹6 crore, encompassing both the profits earned from advisory services and the associated interest. SEBI has also released a consultation paper on similar lines of regulating finfluencers which provides that unregistered entities (including finfluencers) should not collaborate with registered/regulated entities through their 'referral business model' or any other means.
SEBI's proactive steps against finfluencers position India as a responsible participant in the evolving landscape of financial influencer oversight. However, beyond a point, even the regulator cannot be responsible if the retail investors engage with unregistered entities and suffer fraud by dealing in dubious schemes.
The contents of this article should not be construed as legal opinion. Recipients should take independent legal advice before acting on any views expressed herein. The comments in the article are as of the laws prevalent on the date the article was originally published. The views stated in the article are not binding on any authority or court, and so, no assurance is given that a position contrary to that expressed herein will not be asserted by any regulatory authority/courts. For any further queries or follow up, please contact Finsec Law Advisors.
