Can "educational" videos be ads? Sebi's order on Basant Maheshwari gives the answer

Investment advisers are required to carry a disclaimer in their advertising content, and the disclaimer should be clearly visible in a prescribed font and with prescribed wording.

The Securities and Exchange Board of India (Sebi) has fined Basant Maheshwari, a popular YouTuber and Sebi-registered investment adviser (IA), for various violations, including one related to advertising code.

In an order issued on March 25, Sebi fined Basant Maheshwari Wealth Advisers Rs 4 lakh. Maheshwari, who heads this IA, has a big following on social media, with over 5 lakh followers on YouTube, over 3 lakh on Twitter and nearly 1.8 lakh on Instagram.

The Sebi order should serve as a warning to many IAs and Sebi-registered research analysts (RAs) as they too follow a similar promotional format--of making enticing claims on investment returns on their social-media handles and then using this messaging to direct users to a product or service, market insiders told Moneycontrol.

"Often, these registered entities claim that they are just posting educational content. But because the social media content's captions or headers promise such extraordinary investment returns, people end up engaging with the content, and then users are given a link to either the IA's/RA's advisory service provided over Telegram, WhatsApp or other digital platforms," a source said, on condition of anonymity.

Also read: SEBI is not considering holding exams for investors to test suitability for F&O trading: Ananth Narayan

What is an ad?

Maheshwari was observed as having shared YouTube videos carrying titles such as "100x Portfolio - 3 Saal Mein? Kaise Kiya?" or "1 Crore Ko Double Kaise Kare?? Explained in 2 minutes" or "Kaise Banaya Rs 150 crores Sirf Trading kar ke?"

The IA submitted that the videos cited by Sebi did not amount to advertisements since advertisements need to influence investing and trading decisions of people, and the IA's videos were done only to educate the general public.

The IA's submission said: "(the videos) are only meant for general public for educational purposes and built only for knowledge- sharing motives and updates about the stock market."

But Sebi argued this line of reasoning was wrong. The order cited a link in Maheshwari's content, directing users to the IA's Smallcases (see below a screenshot), which are model portfolios designed by Sebi-registered entities and hosted on a platform called Smallcase.

The regulator directed the IA's attention to a Sebi circular issued on July 15, 2023, and para 9 in particular. Under this, advertisement means "all forms of communication, issued by or on behalf of IA, that may influence the investment decision of any investor or prospective investor".

"The material available on record shows that the noticee (Basant Maheshwari Wealth Advisors) had been uploading videos on YouTube with exaggerated captions and had been providing link to his Smallcase website in the description of his YouTube channel with the statement 'Invest in our Smallcase'," the order said.

"Thus, the noticee was influencing investors and thereby the Youtube videos were advertisements issued by the noticee," it said.

Disclaimer missing

Investment advisers are required to carry a disclaimer in their advertising content, according to a Sebi circular issued on July 15, 2023. According to the circular, "Standard warning in legible fonts (minimum 10 font size) which states 'Investment in securities market are subject to market risks. Read all the related documents carefully before investing' should be given. No addition or deletion of words shall be made to/from the standard warning."

Maheshwari's disclaimer "was not clearly brought out in the description as it has been uploaded through a PDF link on the description", the order said.

The order also fined him for other violations, such as charging clients through both fixed-fee model and asset-under-advice model, when IAs can only charge their clients through one of the modes selected by that particular client, and for not doing the necessary annual audits.