ABSTRACT
In today’s times social media has become a popular tool for spreading information across various platforms, which also includes financial advice. This has led to stock manipulation and misinformation wherein various social media influencers, in this case known as ‘Finfluencers’ have started to engage in various activities which mislead investors and disrupt market functioning. This paper analyses the role of SEBI to protect such vulnerable investors from manipulations and put a curb on such practices. It evaluates forms of such social media practices through relevant SEBI circulars and regulations, case precedents. By identifying gaps in current laws and making comparative analysis with the laws and regulatory bodies of other countries such as the United States and European Union this paper aims to propose strategies to strengthen the current framework in regulating such social media manipulations.
KEYWORDS
SEBI; Stock Manipulation; Finfluencers; Investor Protection; Social Media Regulations; SEBI Circular; Insider Trading
INTRODUCTION
SEBI is famously known as the ‘watchdog of the stock market’ as it has the primary role of protecting the investors and ensuring that fair practices are being conducted in the stock market. Framing regulations such as the Securities Contracts (Regulation) Act, 1956 (SCRA) and the Prevention of Fraudulent and Unfair Trade Practices (PFTUP) Regulations, SEBI has the sole authority to regulate and even prosecute those who violate securities laws. It has actively worked towards preventing unfair practices such as insider trading, price rigging and misleading information which leads to stock price manipulation.
The advent of social media has construed news challenges for the authority in India as information spreads quickly over the internet leading to people being easily influenced by rumours and misinformation. Nowadays, almost anyone can pretend to be a financial expert on social media platforms and spread information regarding the stock market thereby misleading the investors. The question arises, ‘How can SEBI enhance its rules to combat stock manipulation caused by social media?’
RESEARCH METHODOLGY
This paper follows the doctrinal method of research by examining secondary data from scholarly publications and SEBI circulars and consultation papers. It also lays down cross-jurisdictional analysis with various countries such as the SEC (U.S.) and FCA (U.K.) to demonstrate various regulations in handling market manipulations driven through social media. Primary sources include SEBI Act, Securities Contracts (Regulation) Act (SCRA), and Prevention of Fraudulent and Unfair Trade Practices (PFTUP) Regulations. Case laws include comprehensive rulings by the Securities Appellate Tribunal (SAT) to analyse how courts have decided on such issues. Secondary sources include academic papers and legal journals to provide more insights on how regulatory measures can be brought into curbing such illegal practices.
REVIEW OF LITERATURE
Scholars and legal journals have widely discussed the rising role of finfluencers regarding social media driven stock manipulation. In the article by Renault (2017) methods such as ‘pump-dump’ schemes are discussed which involve artificially increasing the value of stocks and how messages spreading on social media platforms like twitter result in large price increases on the stocks consequently followed by a decrease the next week. The article “Impact of Social Media on the Securities Market” talks about how the market is manipulated by platforms such as Twitter and WhatsApp and discusses cases related to Elon Musk’s tweets and how they impacted the stock market. Moreover, spreading of financial misinformation on the social media where everyone is masked as an expert leads to a decline in trading activity and price fluctuations (Kogan, 2021). However, what’s lacking in these resources is that stock manipulation is not just limited to some social media platforms but is more widespread and how SEBI can actually work towards actionable movements in regulating such manipulations. A detailed cross-jurisdictional analysis will also help in finding how various countries have been regulating such market movements.
WHAT IS SOCIAL MEDIA DRIVEN STOCK MANIPULATION
The role of social media in manipulating stock market begins with a social media post or a report on the media that captures the attention of the investor. This message begins to rapidly spread in the market. Investors, analysts interpret this widespread information forming a sentiment and influence market expectations. This leads to higher buying and selling pressures which creates major movements in the prices of the shares resulting in a cycle which constantly influences investor behaviour.
It refers to the use of channelling social media platforms such as Twitter, Instagram , Reddit etc to spread misinformation regarding financial data to influence stock behaviour. These tactics mainly include pump and dump schemes wherein stock prices are artificially raised (pump) causing the stock to crash (dump) leaving investors with losses. There is also a new phenomenon known as the ‘Meme Stocks’ which is basically a type of stock which suddenly goes viral on the social media platforms which results in price and volume increase of the stock which are completely unrelated with the company’s actual financial performance and are highly risky to invest in as they die down when the hype ends. Prevalent social media influencers with huge followings are often seen portraying themselves as financial advisors and recommending what stocks to invest in which is mostly biased and promoted leaving the investor with lack of information. Social media is held responsible for creating a urgency among the investors present in the market to buy a particular stock without fully knowing the risks associated with it, which leaves the investor wondering that they will miss out on an opportunity if they do not act then and there.
CURRENT REGULATORY FRAMEWORK
There is presently no specific law which governs finfluencers however they are expected to follow Section 12-A, Clause (e) of the SEBI Act, 1992 which expressly states that any person who deals in securities while in knowledge of substantial or non-public information, should not convey such information to another individual in a way that violates the Act’s provisions or the rules or regulations established under it; and Regulation 4 of the PFUTP Regulations which prohibits disseminating any information which is known to be false or misleading and likely to influence investor behaviour. The growing influence of social media has however led to more amendments such as on 29 January 2025, SEBI issued a detailed circular restricting intermediaries from dealing with any organization that provides investment advice without registration with SEBI or makes return or performance claims on securities without approval. Moreover they state that financial educators can only use stock prices data with a three-month lag to avoid real time updates. This circular’s expansive definition of “association,” which goes beyond what is explained in Section 16 A of the 2024 Regulations, is one of its key features. Regulated organizations are prohibited by SEBI from interacting in any way—including financial partnerships, referral contracts, marketing alliances, or online partnerships—with unregistered influencers. Influencers who might be compensated through intermediaries in an investing platform or security promotion market are prohibited from engaging in indirect sponsorships and hidden endorsements.
Case Studies regarding Social Media-Driven Stock Manipulation
The famous case of Sadhna Broadcast which serves as a prime example of social media stock manipulation wherein SEBI passed the final interim order dated May 29, 2025 (SEBI Order, 2025) barring 59 individuals from accessing securities market. A total disgorgement of Rs 41.85 crore was ordered from various parties. The case was an example of pump and dump schemes used to manipulate stock prices. Various YouTube videos featuring actors and influencers were released to inflate stock prices by making false claims such as Hollywood collaborations. It was not disclosed that the content of such videos was promotional and paid by insiders of the company. It represents SEBI’s reach to various platforms and hold individuals liable for influencing the investors.
In the case of SEBI v. Asmita Patel Global School of Trading Private Limited & Others it was observed that stock manipulation was done through artificial volume and price creation of the shares of Asmita Finance Ltd by misleading messages on Telegram promoting the stocks as ‘Multibagger.’ It created a fake impression to offload shares at a higher price. As a result, SEBI imposed penalties under Regulation 3 and 4 of PFUTP Regulations, 2003 and Section 12A(a), (b), and (c) of the SEBI Act, 1992 ranging from 5-20 lakhs and debarment from securities market up to 2 years.
In the recent interim order dated 17 June 2025 passed by SEBI in the case of Sanjiv Bhasin, former director of IIFL securities and 11 others were barred from the securities market and were ordered to disgorge gains amounting to Rs 11.37 crore under violations of PFUTP (Prohibition of Fraudulent and Unfair Trade Practice) Regulations. Sanjiv Bhasin was found providing stock recommendations through social media platforms such as telegram and IIFL platforms and given the mass viewership the stock prices were heavily impacted. It was also revealed that other entities also misused such information provided by Bhasin and made similar trading gains using his strategies.
These cases do set strong regulatory enforcement actions of SEBI towards market manipulation and how the body is adapted towards it however there still exists a legal lacuna which the laws are yet to full such as how social media platforms and finfluencers have to undertake a greater responsibility under this regime and how SEBI will set uniform standards to compensate for investor losses.
CROSS JURISDICTIONAL STUDIES AND INTERNATIONAL FRAMEWORKS
The Market Abuse Regulation (MAR) came into effect July 3, 2016 which aimed to improve European Union’s anti-market abuse regulations such as insider trading, unlawful disclosures and market manipulation. It broadened the definition of already-existing offenses and tightened regulations for businesses doing business in EU financial markets. In the UK and every EU member state, MAR is immediately applicable; nations are not required to pass legislation implementing its requirements. It also gives competent authorities in EU member states the authority to look into and punish market abuse, including social media abuse. This includes the capacity to keep an eye on internet forums and compile proof of dishonest conduct. The Digital Service Act while not being specifically a financial regulation act also aims to create a safe digital space and to establish a level playing field for all innovators in the market. It puts a greater responsibility on the very large online platforms which include social media platforms by framing rules and regulations for them. This ensures transparency and accountability for risks associated with spreading of misinformation.
Under the Securities Exchange Act of 1934, the SEC (Securities Exchange Commission) created is responsible for maintaining market integrity as well as establishing rules for transparency in the market so that investors can make informed decisions. The SEC imposes a requirement that public companies, asset managers, and investment professionals announce important financial information. The SEC is also empowered to take action against criminals under federal securities laws. In addition this, the Financial Industry Regulatory Authority (FINRA) which was established in 2007, is a government organized, not for profit organization that regulates the brokers in the United States. FINRA is overseen by the SEC in enforcing rules for registered brokers. FINRA administers the licensing of the brokers because all brokers must be licensed by FINRA.
The GameStop Corp trading episode that happened in the US in 2021 raised concerns about stock manipulation. GameStop is video game vendor chain who was experiencing a sales decline but in January 2021 the stock prices surged through manipulation by Reddit’s WallStreetBets forum and trading platforms like Robinhood. The retail investors made the company a target for short squeeze as they bought the shares which increased their price knowing hedge funds had bet against the stock due to which the investors were forced to buy back shares further increasing the prices. The SEC and FINRA then imposed restrictions and penalties on Robinhood.
The above cross jurisdictional analysis of various bodies under different jurisdictions provides us insights on how the regulations are updating to take in account social media manipulations and ensuring greater transparency. However, putting a direct obligation on social media platforms and compensation of affected investors still remains a challenge. These legal gaps underscore the necessity for SEBI to hold the preparators directly accountable for influencing investor behaviour, taking lessons from international frameworks for better protection of investors and fair practices in the market.
RECOMMENDATIONS ON SEBI ENHANCED REGULATION AND PLATFORM ACCOUNTABILITY
While SEBI has been actively engaging on releasing circulars, consultation papers and guidelines to bring social media regulations into the picture of securities market, here are some key recommendations to regulate market manipulation and investor protection:
Regulate platform accountability
SEBI should bring social media platforms into the purview of being regulated for stock manipulation. Major platforms such as Instagram, YouTube, Twitter etc which generate maximum viewership should collaborate with the regulatory bodies and frame guidelines for flagging such financial content which depicts to be misleading and such content should be removed from the platform. The platforms could also use AI and automated systems which flag such content and the violation of these guidelines should attract penalties. The social media platforms play a huge role in providing the finfluencers who do not possess minimum qualifications a medium to convey their advises to create hype among the investors and influence market behaviour so their cooperation is of the utmost importance to restrict such misinformation in inflating stock prices.
Strengthen influencer liability
Even through SEBI has issued circulars and consultation papers for finfluencers and registered intermediaries there is still an existing gap to hold them accountable for their actions. When influencers give financial advice resulting out of a personal gain the content should be explicitly marked as ‘promotional.’ There should be standard threshold for influencers for the amount of followers they have to regulate them if they are into activities of providing financial information related to the stock market. SEC has rules for influencers and financial advisors, a similar approach should be adopted by the SEBI to set up disclosure requirements to be made by such influencers to disclose conflict of interest.
Investor Protection Fund (IPF) for Social Media-Driven Manipulation
The use of investor protection fund should be expanded so that the investors who have incurred losses from stock manipulations can be correctly redressed and compensated. The fund would ensure that the investor losses are settled. The penalties which SEBI imposes on the companies goes into the fund only so it shall only be appropriate to compensate the investors through the fund as the main goal of the fund is investor protection.
Creating awareness and investor education
SEBI should undertake activities to collaborate with financial and educational institutions, media houses and financial experts to educate people on the effects of social media driven stock manipulation and the techniques employed by such people to mislead the investors. It is crucial that the investors be informed about such tactics so that they can make informed decisions and not fall into the trap of buying stocks in a hurry. In addition to above, launching awareness campaigns and online courses will also aid SEBI in tackling such problems.
Fast track resolution plan and grievance mechanism
SEBI’s existing grievance frameworks such as the integration of Online Dispute Resolution (ODR) and SCORES ( SEBI Complaints Redress System) could streamline the complaints arising out of social media stock manipulation so that investors can seek quick resolutions. A timely grievance mechanism categorising the complaints into influencer misconduct, platform misconduct would help the investors to easily report their cases and track the status of their complaints. A fast track resolution plan is highly crucial in such cases so that further loss to the investor can be prevented. It has been noticed in the mentioned case studies that SEBI has always taken actions post the incident so a prior process should be implemented to prevent investor losses and make them a priority. Lack of an open and impartial process for redressal against finfluencers who are alleged to have violated rules is another essential loophole.
Increase the penalties for non-compliance
Currently, there are no specific penalties for such manipulations framed by SEBI which can help deter influencers and platforms to avoid taking part in stock manipulating so a stricter penalty framework might help curb the illegal activities.
While SEBI’s proposal for enhanced regulation does, in some regard, give rise to privacy concerns, it is possible to navigate these issues through careful consideration in order to maintain a middle ground between personal rights and market integrity. SEBI needs to ensure that all aspects of its regulatory system includes privacy protection. This requires a focus on publicly available data and information which are relevant to the market and implementing transparent, reasonable and clear guidelines for oversight, transparency and complaints. With this method, SEBI can encourage a fair and transparent market without unnecessarily violated rights to privacy.
CONCLUSION
The concept of social media stock manipulation has led to new barriers to the securities market highlighting the need for evolving and updated regulatory norms for investor protection and standardised market activities. The mentioned case studies demonstrate how there is an urgent need for reforms as there is clearly an existing gap to prevent such practices at a much initial stage to mitigate losses. The Securities and Exchange Board of India as the sole regulatory authority in the country for managing the financial markets is responsible to address such irregularities. The essential areas of improvement include holding the influencers and social media platforms liable while also creating timely redressal and grievance mechanisms. The use of investor protection fund also plays a crucial role in providing compensation to investors. The goal is that the advancement of technology should benefit the interest of all the market participants rather than creating hinderances for them. Challenges still are present because the nature of social media crimes is generally global, vast and anonymous along with existing technological and jurisdictional limitations.
In conclusion, SEBI’s role will ultimately decide the future of such practices as transitioning to digital regulation is an ongoing journey that requires constant vigilance and adaptability and will only be successful with the participation of all members of the ecosystem, and rallying efforts to preserve the integrity and advancement of the financial sector.
Abhavya Bansal
OP Jindal Global University
LLB