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Marketing gimmick needs to be filed with the regulator
The Insurance Regulatory and Development Authority (IRDA) has said that insurance companies offering a guarantee for settlement of insurance claims within a certain number of days should make it a part of the product filing. Many insurers also offer some guaranteed interest rate in case payment is not made in the guaranteed...
A stock that will return 200% in 12 months? Stocks tips continue unabated despite SEBI’s rules to curb them. The rule will end up harassing genuine analysts it seems.
An email sent from an anonymous email ID suggests that the receiver buy “Prozone Intu Properties” or PIP. The email tries to lure the reader by saying, “the stock is trading at a market-cap of Rs250 crore and is a screaming buy for the target of Rs60 in next 12 months.” Priced at around Rs20 (when we received the email last week), the email suggests that the stock can go up by three times or 200% in 12 months. This is just one such email. There are many such emails, phone messages, etc. that do the rounds. They make misrepresentations, unrealistic claims, and peddle false tips as fact. Stock tips continue unabated despite the market regulator—the Securities and Exchange Board of India (SEBI), coming out with rules and regulations to curb the same, such as the recent Investment Advisors Regulation.
While honest advisors are burdened to comply with the rules set by SEBI, those who offer such anonymous stock tips are able to go scot free without severe punishment. The thought of being barred from the capital market will not worry them, as they would still be able to continue their business of trade or offering advice through different identities or using several benami accounts.
Take this recent case for example. In August 2013, SEBI cracked the whip on certain entities who were offering trading tips through SMS and WhatsApp. According to SEBI, the entities were prima facie acting as investment advisors without necessary regulatory approvals and it ordered that they be barred from “dealing in the securities market, either directly or indirectly”. The persons involved were Imtiyaz Hanif Khanda and Vali Mamad Habib.
In less than a year, on 5 June 2014, a similar case came to light, involving stock trading tips being offered through SMS and WhatsApp. Here the persons involved seemed related to those above—Mansoor Rafiq Khanda and Firoz Rafiq Khanda. While the regulator notes that “the modus operandi as well as names of the operators in the instant case are similar,” it may spend another few months in investigations “to find out a connection, if any, between the entities.”
Instead of taking strict action or levying a hefty fine against the persons involved, SEBI let them off by just barring them from the capital market and asking them to cease and desist from acting as an investment advisors and withdraw all advertisements, representations, etc. in relation to their investment advisory and portfolio management activities. This may not be enough.
The investors were being promised 200% assured returns on deposit payments of Rs25,000, along with promises of trading tips. The messages also promised monthly gains of Rs25-50 lakh. What happens to the money of those investors who put in their hard-earned money seeking higher returns? SEBI has chosen to keep mum. However, at the end of the order the market regulator does “take this opportunity to caution investors to take their informed investment decisions without being influenced by such messages and advices and to deal with only intermediaries registered with SEBI.” Is the regulator indirectly saying that they are powerless in curbing such malpractices?
The exchanges too have begun cautioning investors. Below is a message published on the BSE website cautioning investors against SMS tips.
But investors have to be cautious anyhow, what is the use of new regulations? From October 2013, only those who had registered under the regulation with SEBI would be able to offer investment advisory services. However, we can see that this has had no effect.
Moneylife had earlier pointed out, that with the new Regulations from SEBI, the tribe of honest investment advisors will hardly grow in India, as there is too much of responsibility with limited freedom. (Read— Investment advisors to become rare species, thanks to SEBI Regulation) The cost is a big de-motivating factor and compliance requirements are onerous. In short, dishonest SMS or email stock tips to continue, while investors will have fewer avenues to receive good and honest advice, thanks to “regulations” that precisely hope to achieve the opposite.
The Union Cabinet approved the eighth ordinance in the government's seven months