Stockbrokers raise alarm against fake WhatsApp groups

Mumbai: Stockbrokers have started cautioning investors against the growing menace of fake WhatsApp groups offering investment advice while impersonating registered entities.

The modus operandi of these groups, market experts said, is to entice investors by promising sky-high returns, while pretending to be legitimate brokers having access to insider information. They are feeding into the frenzy and the fear of missing out among retail investors, which has already alarmed the regulators.

Even the National Stock Exchange, the nation’s largest bourse, recently alerted investors. The exchange said on 12 September it had received a complaint regarding a WhatsApp group named "JO HAMBRO", which is luring retail investors with claims of providing discounted shares after the market closes.

Latest warning

The latest broker to warn investors is SMC Global Securities Ltd, which issued a public advertisement on Thursday listing nearly 70 WhatsApp groups and over 500 phone numbers that it said belong to admins of such groups.

“Recently, it has come to our notice that a whole lot of community has been formed who impersonate SMC, claiming to be our core management to propagate their malicious agenda of scamming unaware customers," said the public notice.

Ajay Garg, chief executive of SMC Global Securities, said these individuals are falsely promising returns of two-three times on stock investments and are even using fake Sebi certificates to pose as registered brokers. “In the past seven to eight months, we found 300-400 WhatsApp groups operating under the name of SMC Global Securities, with 500 numbers acting as admins in these groups."

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SMC came to know of the issue from complaints by investors who were duped by the impersonators. The brokerage said it approached Sebi and the exchanges, who directed them to file FIRs (first information reports). Garg said the scamsters operate like an organized gang and if any member raised an alert, the admins would quickly remove everyone from the WhatsApp group.

Mint tried calling at least 50 of the numbers listed in the advertisement. A majority of these were out of service, and one person who picked up claimed he was from Bihar and was unaware of any WhatsApp group.

Emails sent to the Securities and Exchange Board of India (Sebi), NSE and BSE remained unanswered.

Some pretenders

The markets regulator has received complaints about some entities fraudulently pretending to be Sebi-registered intermediaries and trying to dupe the investors through social media platforms and apps by asking for funds to purchase securities, according to information presented in the Rajya Sabha on 20 July. Junior finance minister Pankaj Chaudhary said that Sebi has flagged 8,890 instances of unlawful or misleading content relating to the securities market to the social media platform concerned for legal action.

On 23 July, Alankit Ltd, the flagship company of the Alankit group and fintech services provider, had informed the stock exchanges that it found deceptive WhatsApp groups impersonating the company and its related firms. These groups, Alankit said, are providing stock recommendations and unsolicited investment advice by misusing the names of the company and its managing director Ankit Agarwal, and the firm's registered trademark.

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“Such groups are designed to defraud the stakeholders," it said. According to the regulatory filing, one of the messages received by some people read: "Join the Alankit Limited stock group to get stock codes with a 30% weekly return."

A spokesperson for Alankit said that in addition to public awareness campaigns, it has also filed a formal complaint with the cyber cell department to take action against fraudsters. “Amid a rising tide of WhatsApp scams, Alankit is taking decisive action to protect its reputation and restore investor confidence. Fraudsters are using the platform to target unsuspecting individuals with false promises of high returns and guaranteed profits."

False impressions

According to Ashish Rathi, a full-time director at HDFC Securities, fake WhatsApp groups give the impression that large sums of money can be made by paying a small amount of money. They also claim to have insider information and access to news not available to the public yet. For a small payment, people are told they will get access to a lot of information, which will help them make easy money, he said.

“This is really harmful given that the customer or the prospect gets an impression that it is an easy way to make money; also, given that a big institution is backing it up, it means it's authentic," said Rathi. “For the institution, it’s the reputation risk that takes a beating."

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Brokerages are worried about loss of trust. Shripal Shah, managing director and chief executive of Kotak Securities, said not even the leading stockbroking firms have been spared. “Such impersonation/frauds cause irreparable business and reputation loss not only to stockbrokers being impersonated, but also pose a systematic risk to the entire market and economy."

According to legal experts, the menace of fake WhatsApp groups can be tackled using the law against identity theft under Section 66C of the Information Technology Act. “From a regulatory perspective, the onus is on Sebi to direct all registered stockbrokers to maintain a publicly available list of all their communication channels so that investors can immediately verify the authenticity of any WhatsApp group against such list," said Deepika Kumari, partner, King Stubb & Kasiva, Advocates and Attorneys.

Retail investors vulnerable

As the equity market soars, chances of generating quick returns make retail investors vulnerable.

“Everyone seems to want a piece of the great Indian equity rally, and most want it fast. In absence of a better term, it is this greed that leads to FOMO (fear of missing out), and consequent gullibility as investors," said Nirav Karkera, head of research at Wealthtech company Fisdom. “The current frenzy is an opportune moment for people with mala fide intentions to capitalize on such gullibility and make money off it."

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Karkera, however, pointed out that the problem is not specific to stock markets. “Today, impersonation in the digital ecosystem has become rather common as imposters try to deceive unsuspecting people through easily accessible channels such as social media and messaging applications," he said. “This is happening across levels with a wide array of brokers and several other financial intermediaries."