Ending Soon! Save 33% on All Access

Danger Ahead: How To Protect Yourself From Fraudulent Financial Schemes Although the World Wide Web helped create a global village, the pandemic and its aftermath pushed us into an era where online scams multiplied and continue to do so.

By Kabir Singh Bhandari

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Photo by Bermix Studio on Unsplash

Although the World Wide Web helped create a global village, the pandemic and its aftermath pushed us into an era where online scams multiplied and continue to do so. One of the most recent additions to this new phenomena are 'pump and dump schemes'. A pump-and-dump scheme involves 'pumping up' the share price by spreading misinformation about it, after which certain parties 'dump' the shares by making profits, leading to others making losses. SEBI has said these are fraudulent trade practices. The most prominent case which made them sit up and take notice involved actor Arshad Warsi, his wife Maria Goretti and some others, who allegedly pumped up share prices of Sadhna Broadcast and Sharpline Broadcast by deceptive YouTube videos.

The videos in question had been uploaded in July 2022 on two YouTube channels, The Advisor and Moneywise, which were aimed at luring in investors. According to the promotional videos several claims were made, such as the company shall be moving from TV production to making movies and that a prominent American company had signed a contract worth 1,100 crore INR to make some devotional movies.

After being barred from trading securities by SEBI, Warsi had put out a tweet, "Please do not believe everything you read in the news. Maria and my knowledge about stocks is zero, took advice and invested in Sharda [Sadhna], and like many others, lost all our hard earned money."
Schemes such as these are illegal but a lack of knowledge in this sphere coupled with the thought of making a quick buck lead people to become part of such issues. And that is why SEBI had issued a statement that from now on they shall be monitoring the activities of 'finfluencers'i.e. financial influencers who have gained popularity in the last two years.

To get a clearer perspective, we spoke to a few of the top finfluencers who spoke to us about the road ahead.

"SEBI brought the finfluencer (Financial Influencer) guidelines to regulate the activities of social media influencers in the financial market. The guidelines aim to ensure that such influencers do not mislead investors by providing false or biased information about financial products or services. Data shared by the Advertising Standard Council of India (ASCI) showed they received over 2,700 complaints about influencers and brands not disclosing financial connections since 2021. The highest number of complaints were related to personal care and virtual digital assets in FY22. Instagram was the platform with the most complaints in FY22, while Facebook had the most in FY23," Neha Nagar, Founder of Taxationhelp and a leading finance influencer told us.

Nagar explained to us that SEBI monitors the following aspects:
1. Disclosure: Disclosures by influencers on brand collaborations, advertisements, paid partnerships, or sponsorships for all such posts on all platforms However, it falls short of covering stock recommendations.
2. Fair and accurate information: SEBI is monitoring that finance influencers and social media platforms provide fair and accurate information about the securities they are promoting or recommending. They must not make any misleading or false statements or engage in any market manipulation activities.
3. Advertising Standards: SEBI is vigilant in ensuring that financial influencers and social media platforms follow ethical and legal advertising standards. They must not engage in any deceptive or misleading advertising practices.
4. Compliance: SEBI also monitors that finance influencers and social media platforms comply with all applicable securities laws, regulations, and guidelines. They must also have appropriate systems and controls in place to prevent any fraudulent or illegal activities.

But why are scams like these so effective? Adarsh Gupta, UPSC educator and finance creator says that these schemes become successful due to a variety of reasons. He lists out five main factors:
1. Fear of Missing Out (FOMO): Investors may be attracted to a stock that appears to be rapidly increasing in value, especially if they fear that they may miss out on the opportunity to make a quick profit.
2. Lack of knowledge and experience: Many retail investors may not have the necessary knowledge or experience to evaluate the legitimacy of a stock or investment opportunity. Scammers take advantage of this by presenting false or misleading information that appears to be credible.
3. Manipulation of social proof: Scammers often use social proof to manipulate investors into buying a stock. They may use fake reviews, endorsements from fake or paid influencers, or create a false sense of urgency to convince investors to act quickly.
4. Emotional triggers: Scammers often use emotional triggers to influence investors. They may use fear, greed, or other emotions to create a sense of urgency and encourage investors to buy the stock.
5. Lack of regulation: Some pump-and-dump scams may be able to operate for a period of time without being detected or shut down due to the lack of regulation or oversight in the market.

Although SEBI shall be monitoring such activities, it is important that on our own too we understand how to side step such schemes and be vigilant. "It is important to exercise caution and do your due diligence before investing in any stock. Don't blindly follow the advice of social media influencers or other sources of unverified information. Instead, research the company and its financials, and look for reliable sources of information, such as financial news outlets or research reports from reputable firms. It's also important to understand the risks involved in investing and to have a long-term investment strategy that takes into account your financial goals and risk tolerance. Finally, always remember that if something seems too good to be true, it probably is. Don't be tempted by promises of quick and easy profits, as these are often the hallmark of pump-and-dump schemes. By taking these steps and being vigilant, you can protect yourself from investment scams and make informed decisions that are in your best interest," Gupta advises.

Kabir Singh Bhandari

Former Senior Assistant Editor

Business News

TikTok Reportedly Laid Off a 'Large Percentage' of Employees as the App's Fate in the U.S. Remains Unclear

Laid-off TikTok employees were notified Wednesday night through Thursday morning.

Business News

Four Seasons Orlando Responds to Viral TikTok: 'There's Something Here For All Ages'

The video has amassed over 45.4 million views on TikTok.


How to Break Free From the Cycle of Overthinking and Master Your Mind

Discover the true cost of negative thought loops — and practical strategies for nipping rumination in the bud.

Side Hustle

These Brothers Had 'No Income' When They Started a 'Low-Risk, High-Reward' Side Hustle to Chase a Big Dream — Now They've Surpassed $50 Million in Revenue

Sam Lewkowict, co-founder and CEO of men's grooming brand Black Wolf Nation, knows what it takes to harness the power of side gig for success.

Business News

More People Are Exploring Entrepreneurship Because of This Unexpected Reason

More new business applications were filed in 2023 than in any other year so far.