Author: Amritava Pramanik, Department of Law, University of Calcutta
Linkedin Profile: https://www.linkedin.com/in/03amritava-pramanik-b46a20317
To the Point
The virtual revolution has transformed how financial markets perform, posing remarkable challenges for global market regulators. The Securities and Exchange Board of India SEBI) faces mounting pressure to deal with state-of-the-art inventory market manipulation schemes that take advantage of social media systems and rising artificial intelligence technology. Conventional regulatory frameworks, designed for traditional trading environments, warfare to hold pace with the fast evolution of virtual fraud mechanisms. Social media systems like YouTube, Facebook, Instagram, WhatsApp, and Telegram have emerged as breeding grounds for securities market fraud, with perpetrators the usage of deceptive classified ads, faux trading guides, and deceptive testimonials to trap unsuspecting traders. The proliferation of unregistered financial advisors and influencers making unverified funding claims has similarly complicated the regulatory panorama. SEBI’s latest tasks, such as mandatory verification requirements for intermediaries advertising on social media systems and the creation of specified communication channels, represent essential steps closer to addressing these rising threats. However, the intersection of artificial intelligence with market manipulation affords even more complicated and demanding situations that require revolutionary regulatory processes.
Legal Jargon
Marketplace Manipulation– Practices are supposed to misinform or lie to investors by way of developing a false appearance of marketplace activity or charge movement.
Securities and Exchange Board of India (SEBI)– The regulatory authority overseeing securities markets in India.
Intermediaries– Entities such as brokers, sub-brokers, portfolio managers, and funding advisors registered with SEBI to act as an bridge between investors and markets.
Mens rea– Latin term for “guilty minds” refers to the aim or know-how of wrongdoing in crook law.
Round Tripping– A shape of financial fraud related to the stream of cash or securities to provide an illusion of genuine commercial enterprise transactions.
Securities Appellate Tribunal (SAT)– A statutory body responsible for reviewing appeals against decisions made by SEBI.
Liability– A person’s responsibility for one’s moves or omissions.
Inference from Circumstantial Evidence– Drawing a conclusion about purpose or guilt based on indirect evidence, such as styles of conduct.
The Proof
SEBI’s modern press releases underscore a stressful surge in fraudulent activities across social media systems, with fraudsters exploiting the growing reliance on virtual conversation. The regulator has found a demanding trend in which perpetrators promote fake buying and selling seminars, circulate manipulated “insider guidelines” through systems like WhatsApp and Telegram, and deploy fake apps on Google Play keep and Apple keep that mimic legitimate SEBI-registered entities To combat this escalating risk, SEBI has partnered with Social Media Platform carriers SMPPs which include Google and Meta to roll out a comprehensive verification framework. Below are the brand new guidelines applied in March 2025. SEBI-registered intermediaries are required to update their official contact details with Single Master Payment Points (SMPPs) using credentials from the SEBI SI Portal by April 30, 2025. This verification system guarantees that handiest legitimate entities can put it on the market economic offerings to the general public.
Additionally, SEBI has released its reliable X account SEBI updates and mandated the use of the specified ‘1600’ telephone range collection for transactional and service-related voice calls from regulated entities. These steps underscore SEBI’s ongoing efforts to combat financial fraud in the digital realm and foster confidence in online financial transactions.
Abstract
The upward thrust of social media and artificial intelligence (AI) has revolutionised economic markets, bringing both innovation and new threats. In India, SEBI is encountering growing challenges in combating stock market manipulation through deceptive online tactics and AI-driven schemes. Platforms like YouTube, Telegram, and WhatsApp are often exploited to promote faux trading seminars, unverified funding advice, deepfake endorsements, and deceptive retail buyers. Conventional regulatory frameworks are proving inadequate in responding to those tech-enabled manipulations.
This newsletter examines SEBI’s evolving regulatory reaction, including of latest verification mandates for virtual advertisements and reinforced communication protocols.
Examining key rulings like SEBI v. Rakhi and SEBI v. Kanaiyalal Patel, the article explores how Indian courts have interpreted SEBI’s enforcement powers within the virtual generation. It concludes that whilst SEBI has taken significant steps, in addition to prison reforms, AI-incorporated surveillance tools, and worldwide collaboration are vital to uphold marketplace integrity and investor trust in an increasingly digitised and decentralised funding landscape.
Case Laws Related to this Topic
SECURITIES AND EXCHANGE BOARD OF INDIA V. SHRI KANAIYALAL BALDEVBHAI PATEL (2017)
This landmark, excellent court judgment addressed a vital gap within the SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities market. Rules, 2003 PFUTP rules). The case focused on whether or not the front jogging prohibitions applied simply to intermediaries or extended to all market contributors. The talk arose from a regulatory evolution wherein the 1995 PFUTP rules prohibited the front jogging by any ‘individual,’ however, the 2003 model restricted this prohibition to ‘intermediaries’ simply. Trading has raised questions about the permissibility of non-intermediaries participating in front-running without breaching SEBI regulations. Justice N.V. Ramana and Justice Ranjan Gogoi introduced separate critiques, each concluding that the front jogging by non-intermediaries falls within the prohibition of PFUTP rules. The excellent court followed a liberal interpretation of the rules, emphasising that the civil nature of SEBI court cases does not require proof beyond a reasonable doubt or mens rea for organising violations. This judgment is mainly massive within the social media context because it establishes SEBI’s authority to pursue fraudulent trading practices, no matter whether or not the culprit is a registered middleman.
Many social media fraudsters perform as unregistered entities, and this precedent guarantees they can not escape regulatory action by claiming exemption from middleman-specific provisions.
Securities and Exchange Board of India v. Abhijit Rajan (2022)
The ideal court’s choice in this situation, added on September 19, 2022, addressed the vital factors required to set up insider buying and selling prices. The case raised complicated questions on the intellectual element required for insider buying and selling violations. Mr. Rajan was investigated by SEBI for alleged insider buying and selling under the 1992 rules. The important criminal query became whether proving an insider’s cause to make earnings is vital for organising insider buying and selling prices. The ideal court held that an insider’s cause to make earnings is vital to set up a rate of insider buying and selling, including a vital element to the criminal framework governing such violations. This situation is important for social media manipulation cases because many fraudulent schemes involve sophisticated actors who may argue they lacked the requisite intent. The judgment clarifies the evidentiary requirements for proving market manipulation prices, particularly relevant while coping with AI-driven manipulation schemes in which intent can be tough to establish.
Securities and Exchange Board of India v. Skdc Consultants Ltd. (2004)
This example revolves around the question of company liability for regulatory violations committed previous to an organisation’s incorporation. SEBI forced a punishment of a 25000 on SKDC Specialists Ltd. under section 15B of the SEBI Act, 1992, for failing to enter into proper agreements at the same time as acting as a Registrar to a trouble and percentage switch Agent for two organisations in 1995. However, SKDC Experts Ltd. became incorporated in 1998. The violations noted using SEBI had been committed using a sole proprietorship named Sree Krishna Records Centre (SKRC), which was owned using Mrs. Padma Sreedharan and was later taken over using SKDC Experts Ltd. after incorporation through a Memorandum of Understanding. The Bombay High Court upheld this ruling, clarifying that at the same time as SEBI can impose civil consequences without proving rationale, it can not impose liability for violations predating an organisation’s incorporation. Relevance to the article: This example highlights SEBI’s demanding situations in attributing liability efficiently, particularly applicable in the digital age where AI and social media allow fast market manipulation. It stresses the importance of clear felony timelines and identifiable actors. As organisations undertake AI equipment and perform through digital systems, SEBI need to modernise its regulatory strategies to ensure accountability without overreaching felony boundaries case revolves around the question of company liability for regulatory violations committed previous to an organisation’s incorporation. Sebi imposed a fine of ₹25,000 on Skdc Experts Ltd. under section 15B of the SEBI Act, 1992, for failing to enter into proper agreements at the same time as acting as a Registrar to a trouble and percentage switch Agent for two organisations in 1995. However, SKDC Experts Ltd. became incorporated in 1998.
The violations noted using SEBI had been committed using a sole proprietorship named Sree Krishna Records Centre (SKRC), which was owned using Mrs. Padma Sreedharan and was later taken over using SKDC Experts Ltd. after incorporation through a Memorandum of Understanding. The Bombay High Court upheld this ruling, clarifying that at the same time as SEBI can impose civil consequences without proving rationale, it can not impose liability for violations predating an organisation’s incorporation. This example highlights SEBI’s demanding situations in attributing liability efficiently, particularly applicable in the digital age where AI and social media allow fast market manipulation. It stresses the importance of clear felony timelines and identifiable actors. As organisations undertake AI equipment and perform through digital systems, SEBI need to modernise its regulatory strategies to ensure accountability without overreaching felony boundaries.
Securities and Exchange Board of India v. Rakhi Trading Pvt Ltd. (2018)
In this landmark case, SEBI investigated suspicious trading activities on the National Inventory Exchange (NSE) related to certain entities, such as Rakhi Trading Pvt. Ltd., that accomplished repetitive, synchronised trades.
These trades created an illusion of excessive marketplace activity without actual switch of possession, typically called round trading or layered marketplace manipulation. SEBI found that the investors involved had entered into transactions not for proper trading purposes, but to deceive the marketplace using giving fake impressions of liquidity and calls for. Penalties were upheld under stage 15 of the SEBI Act, 1992, for locks in false and out-of-line substitute homes.
The court ruled that reason can be inferred from the behaviour of the events, and monetary motive is key to determining whether or not an alternative is manipulative. It affirmed SEBI’s function in protecting marketplace integrity, even when direct proof of reason is lacking. This example sets a critical precedent for algorithmic and AI-primarily based trading, where manipulative reasoning can be hidden at the back of record styles. It empowers SEBI to act against social media-pushed or AI-assisted marketplace distortions, reinforcing its regulatory authority in the virtual technology.
Implications for Social Media and AI Regulation
Those cases together establish several crucial principles relevant to regulating social media manipulation:
Large Administrative reach: The Kanaiyalal Patel case guarantees that SEBI’s specialist expands to all market commercial centre people, not enlisted middle people, allowing development towards social media fraudsters.
Reduced Evidentiary Burden: The civil nature of SEBI complaints, as mounted in the Bombay High Court docket cases, facilitates quicker regulatory movement towards rising types of manipulation.
Necessary Motives: The Abhijit Rajan case clarifies that while a specific motive should be confirmed, it offers guidance for cases involving state-of-the-art AI-driven manipulation schemes.
Evolutionary Interpretation: The progression of SAT choices demonstrates the judiciary’s willingness to evolve regulatory interpretations to cope with rising marketplace realities.
Conclusion
The intersection of social media, artificial intelligence, and stock market manipulation provides remarkable demanding situations for economic regulators. SEBI’s proactive measures, which include mandatory verification for social media advertisements and detailed communication channels, display the popularity of these evolving threats. But the regulatory framework must adapt to cope with state-of-the-art manipulation schemes that make the most of virtual structures and emerging technology. The case law analysis exhibits that Indian courts have commonly supported expansive interpretations of SEBI’s regulatory authority, allowing action against numerous forms of market manipulation. The established order of civil proceedings requirements and the extensive applicability of fraudulent alternate exercise prohibitions provide SEBI with sturdy tools to cope with social media manipulation. Shifting forward, effective law will require continued collaboration between SEBI and era structures, enhanced investor education about virtual fraud dangers, and development of AI-powered surveillance structures to discover state-of-the-art manipulation schemes. The regulator must balance innovation facilitation with investor safety, ensuring that valid technological advances in economic services aren’t stifled while keeping market integrity. Success on this endeavour will require ongoing versions of regulatory frameworks, international cooperation, and leveraging era to combat era-enabled fraud.
FAQS
What are the brand-new SEBI requirements for social media advertising?
SEBI calls for all enlisted mediators to confirm their contact data with social media platforms and the utilize of data from the SEBI SI Entrance by April 30, 2025, before publishing commercials.
How can traders discover valid calls from SEBI-regulated entities?
SEBI has ordered a few controlled substances utilize SEBI has ordered that controlled substances utilize the 1600 cell phone assortment collection for value-based and carrier-associated calls, helping dealers find honest to goodness communications.
What forms of social media fraud are most common?
A common frauds consist of fake trading courses, seminars promising chance-free returns, manipulated insider recommendations, and fake apps mimicking valid entities.
Can SEBI take action in opposition to non-registered entities for marketplace manipulation?
A sure base totally at the Supreme Court’s decision in SEBI v. Kanaiyalal Baldevbhai Patel, SEBI can seek after false exchanging honest independent of mediator notoriety.
What ought traders to do if they encounter suspicious social media funding recommendations?
Traders ought to affirm the consultant’s registration on SEBI’s website, report fraudulent sports through reliable channels, and avoid attractive with unverified funding claims.
How is AI impacting the inventory marketplace manipulation?
AI permits sophisticated manipulation schemes through automatic trading, deepfake films for fake testimonials, and algorithmic evaluation for marketplace timing, requiring enhanced regulatory surveillance.
References
SECURITIES AND EXCHANGE BOARD OF INDIA V. SHRI KANAIYALAL BALDEVBHAI PATEL [2017] CIVIL APPEAL NO. 2595 OF 2013
Securities and Exchange Board of India v. Abhijit Rajan [2022] Civil Appeal No.563 of 2020 https://indiankanoon.org/doc/165051678/.
Securities and Exchange Board of India v. Skdc Consultants Ltd. [2004] (2004)2COMPLJ387(BOM) https://indiankanoon.org/doc/687975/.
Securities and Exchange Board of India v. Rakhi Trading Pvt Ltd. [2018] (2018) 13 SCC 753 https://indiankanoon.org/doc/63300860/.
