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Fraudsters disguise as market experts to dupe investors

Mar 11, 2023

The number of online frauds has been rising in leaps and bounds though RBI, Sebi, stock exchanges and cyber crime cells have stepped up vigil significantly

"Sir, stock market trading kaise chal rahi hai (how is your trading experience)?" -- an early morning phone call caught me unawares while sipping a cup of tea. A bit irritated by the inquisitive tone of the stranger at the other end, I instantly disconnected the call without any reply. The next day I received another call from a different mobile number. "Sir, aap commodity trading me apna luck ajmana chahenge? (Would you like to try your luck in commodity trading?" More such calls kept bothering me for many days until one day, out of curiosity, I decided to engage in a complete conversation with a few callers.

The callers tried all the tricks to convince me how investing based on their 'expert' advice could change my fortune in financial markets. I listened to them patiently but, to their disappointment, declined their offers knowing the consequences very well. Those few minutes of conversation with them made me highly concerned about the vulnerability of investors who fall prey to unauthorized stock market experts offering online investment advice with fraudulent intentions.

The modus operandi is well scripted. Disguised as a stock market expert or an advisor, a telecaller approaches you with an offer to invest a certain amount in equity or derivative products on assurance of good short-term returns from regularly offered tips. The caller even tries to lure you with 'hot tips' to start trading on an experimental basis. If you are convinced fully, you will be guided to proceed with online registration with their firms. Then comes the most important part of the vicious game plan. You will be asked to subscribe to their investment schemes for which payment will be accepted only online either by debit/credit card or through netbanking facility. No cheque payment is allowed.

Once payment is credited to their accounts, the caller promises that the money will be invested wisely to maximize gains. Now, all that is left to do is keep waiting patiently for regular updates on your investment. Initially, you are made to feel good with positive updates on the undisclosed portfolio. But, as more days pass, the frequency of updates keeps declining, making you nervous over the fate of your investment in the hands of unknown persons. And then one day you find the caller not reachable or unresponsive despite repeated attempts to contact him. The lesson is learned the hard way.

I am not alone in being hounded by the so-called stock market experts. Milind Kulkarni, a Pune-based close friend who believes in prudent investing, has also been the victim of incessant calls from them for the past many months. "I used to receive many calls offering unsolicited market advice but I never took them seriously thanks to awareness about malpractices in financial markets," he said.

Most of the calls that Mr Kulkarni received had originated from non-metro locations like Ahmedabad, Surat, Gurgaon, Faridabad and Ghaziabad.

Stock broker Ashish Shah, director, Infinite Online Securities, feels small investors harbour a tendency to get attracted to investment schemes assuring abnormally high returns. "My clients keep asking my opinion on some vague offers that they would receive frequently on phones. But, I always advise them to verify the credibility of the advisors before investing," he said.

Mr Shah narrated one past experience wherein a few small-time traders approached him with a proposal to manage the funds of his clients even though they were not authorised to offer portfolio management services.

Sensing a potential risk to investor money, he declined to give the team access to his clients' trading accounts. In the past, many investment schemes assuring guaranteed returns were floated in the market but they could not sustain and eventually went bust, causing a major loss to investors, said Mr Shah.

Recently, one of my close relatives forwarded a text message received on his mobile, with content hard to ignore. "Sure shot intraday and multi-bagger stocks. Earn 120% profit in 4 months."

Investors are being inundated with such kinds of spam text messages shared with a link to access information about their investment schemes and to process payment. Some of them easily fall prey to these unsolicited offers promising eye-popping returns.

"The strategy of some of the online fraudsters is to lure small and new investors to put money in highly rigged/manipulated penny shares recommended as potential multibaggers," said a broker. The share prices are jacked up artificially by operators in connivance with the promoters. Once they reach the targeted levels, the insiders take a quick exit only to leave unsuspecting investors in the lurch. Heavy selling in highly manipulated counters impacts the share prices so much that they keep hitting lower circuits consistently, making it difficult to recover even the cost of investment, observed the broker.

The number of online frauds has been on the rise even though financial market regulators such as RBI, Sebi, and stock exchanges, and enforcing authorities like cyber crime cells have stepped up vigil significantly to prevent malpractices in financial markets in recent years.

According to brokers, high levels of sophistication in the way frauds are committed and a lack of awareness among people are a few important factors behind their growth. While Sebi and stock exchanges keep guiding and alerting investors against a potential risk involved in trading on unsolicited advice, brokers feel investor education and continuous upgradation in cyber security systems can help contain the menace of online fraud.

The stock exchanges and Sebi have regularly been sending emails and messages on mobiles to guide investors about the dos and don'ts of investing in the stock market. According to the NSE investor awareness circular, investors should stay away from schemes that assure unreasonably high returns. They should never trust any written or oral promises assuring guaranteed returns in equity and derivative markets.

They should always have a full knowledge about the products they want to invest in. They should not invest in any scheme run by an entity not registered with Sebi. They should never make cash payments to any stockbroker. Sixthly, investment in Futures & Options (F&O) should be done only with proper knowledge of these products and the risks associated with trading in them. Investors will be less prone to a risk of losing their capital if they pay heed to these words of caution from the regulators, according to brokers.

[The Economic Times]

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