- 13 Jun 2025
Stock Market Scams in India: A Legal and Practical Guide for Investors
In the expanding world of retail investing, stock market scams are evolving rapidly. What once relied on offline word-of-mouth or cold calls has now shifted to high-visibility digital channels like YouTube, WhatsApp groups, and Telegram channels. From dubious "get rich quick" schemes to full-blown pump and dump operations, retail investors are increasingly becoming targets of coordinated misinformation campaigns. These scams not only mislead investors but also distort market integrity and violate several statutory provisions. Recognising these red flags early and understanding the regulatory protections available is essential for investor safety.
The Mechanics of Modern Stock Market Scams
The first hallmark of a scam is the promise of a guaranteed return. Whether it is a WhatsApp message claiming "100 percent secure stock strategy" or a YouTube thumbnail saying "₹10,000 into ₹1 lakh in five days," the emotional pitch is always the same. The scam artist activates the fear of missing out through urgency, scarcity claims, or false social proof. Screenshots of supposed profits, manipulated screen recordings, or fabricated client testimonials are used to lure the investor. Psychological manipulation is often reinforced by scripted trust-building messages and downplaying of risk. These techniques push the investor into acting without due diligence.
Case Study: Sadhna Broadcast Limited (2022-23)
One of the most prominent examples of digital pump and dump manipulation in recent times involved Sadhna Broadcast Limited. In this case, YouTube channels such as The Advisor, Midcap Calls, and India Bullish falsely claimed that the Adani Group was acquiring Sadhna Broadcasting. This created a false perception of credibility and legitimacy, leading to an artificial spike in the stock’s price. Retail investors, influenced by such videos, rushed to buy the stock. Meanwhile, the promoters and their associates offloaded their holdings at the inflated price. The stock eventually collapsed, leaving retail investors with heavy losses.
SEBI investigated the case and took action against sixty four entities. The conduct was found in violation of Section 12A clauses (a), (b), and (c) of the SEBI Act, 1992, which prohibit manipulative and deceptive devices in securities trading. Additionally, the actions also contravened Regulations 3(a) to (d), 4(1), and 4(2)(a), (d), and (e) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
Understanding Legal Provisions under SEBI Law
Section 12A of the SEBI Act, 1992, prohibits persons from engaging in any manipulative or deceptive scheme while dealing in securities. Regulations 3 and 4 of the PFUTP Regulations, 2003 define a wide range of prohibited conduct including price rigging, spreading false news, and creating misleading appearances in the market. These provisions give SEBI the power to investigate and penalise individuals or entities for activities that affect the sanctity of the market.
SEBI also mandates disclosures and standards under its circulars. For instance, Circular No. SEBI/HO/MIRSD/MIRSD-PoD/P/CIR/2025/80 outlines an investor charter, emphasising the right to fair and accurate advertisements, access to transparent data, and caution in high-risk investments. Any violation of these rights may be considered actionable under SEBI's enforcement framework.
How to Identify Scam Operations Using Public Documentation
Scammers rarely have regulatory registrations or transparent operations. The first check any investor should conduct is whether the person or entity is registered with SEBI as an Investment Adviser, Portfolio Manager, or Broker. SEBI’s website allows for direct verification of registration status. Entities not appearing on this database should be treated with caution.
Moreover, any product or course claiming to offer investment advice must clearly state its regulatory status and carry proper disclaimers. Websites that lack office addresses, responsible contact persons, grievance redressal mechanisms, or contain only vague language should be considered red flags. Such documentation-level fraud is often the strongest evidence of deceptive intent.
Pump and Dump: Legal Implications and Detection
A pump and dump scheme typically involves two phases. In the pump phase, fraudulent actors artificially inflate the price of a penny stock through misleading content. This may involve spreading unsubstantiated rumours or creating artificial buying interest. In the dump phase, these manipulators sell off their holdings to unsuspecting investors at inflated prices.
SEBI uses forensic tools to trace such activity and relies on trade trail analysis to identify manipulation. The same legal provisions apply here Section 12A of the SEBI Act and Regulations 3 and 4 of the PFUTP Regulations. SEBI may impose penalties, disgorgement orders, or market bans based on the extent of the violation.
Actionable Remedies and Enforcement Avenues
If an investor is caught in a scam, legal remedies do exist. Complaints can be filed on the SCORES portal operated by SEBI. These complaints must be detailed, documented, and relevant to securities-related activity. SEBI has powers to send notices, freeze assets, order disgorgement, and impose bans. However, SEBI cannot impose criminal punishment. Its jurisdiction is limited to civil and regulatory enforcement.
If the scam pertains to non-securities activity, such as cryptocurrency frauds, unregulated courses, or unauthorised loan schemes, investors must approach cyber crime cells, local police, or consumer protection authorities.
When Market Data Becomes Your Legal Shield
Platforms like NSE and BSE provide detailed public data, including daily price movements, delivery volume, and shareholding patterns. Investors should verify company announcements, promoter holding, and any adverse orders issued by SEBI. Performing a basic audit on these parameters can prevent financial harm. A credible investment opportunity will never require impulsive decision-making based on manipulated media.
Conclusion: Investor Vigilance is the Best Legal Protection
In a market driven by digital communication, awareness is the first line of defence. While SEBI and other regulatory bodies play a significant role in enforcement, the ultimate responsibility lies with the investor. Recognising red flags, conducting due diligence, and staying informed through official sources can save both capital and confidence. Whether it is a fake promise of guaranteed returns or a complex pump and dump scheme, the law is clear manipulation is illegal, and ignorance is not an excuse. The more retail investors empower themselves with legal and factual knowledge, the stronger the foundation of India's capital market becomes.
Disclaimer
The contents in this article are just for informational purposes only. Efforts have been made to ensure the accuracy and reliability of information, the author(s) and publisher do not guarantee its completeness or precision. Any matter written in this article does not express the opinion of the author or the publisher. Additionally, it does not reflect the views of the organisation. Readers should self-analyse the information and perceive accordingly. The author(s), The publisher and the organisation are not responsible for any losses or damage occurring due to the interpretation of the article.
