MC Investigates: Companies hire finfluencers for IPO promotions that violate regulations 

Social-media posts that use hyperbolic statements, such as ‘double your money’, and hashtags such as #multibaggers go against regulations on IPO advertising.

Finfluencers are being approached by companies to post promotional content of initial public offerings (IPOs) in a manner that violates regulations and Advertising Standards Council of India (ASCI) guidelines.

Finfluencers who are not registered with Sebi are being asked to promote these as a great investment opportunity, and the content of these posts can even assure that these are "multibagger" opportunities.

“They want us to talk about the IPOs without the #ad added to it,” one finfluencer said, making a reference to the ASCI guidelines that require social-media influencers to carry disclosure labels that clearly identifies content as an advertisement.

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“The companies don’t directly approach us, they do it through agents or agencies and even the payment can be routed through them,” he said. This finfluencer has been approached by a few companies and has turned their ‘collaborations’ down.

According to content creators, the number of such requests has gone up over the past few months and they are being offered a 20-40 percent premium over their usual content-creation charges.

Sometimes, brokerages which are part of the IPO process also approach them through agencies to promote the issue.

Up to Rs 50,000 per tweet, Rs 10 lakh per video

Content creators are being offered up to Rs 50,000 per tweet and up to Rs 10 lakh per video. These rates will go up if the content creator specialises in writing about IPOs, with the per-tweet rate even going up by nearly twice.

Though cheap bots can be employed to talk up an IPO, they don’t lead to ‘conversions’. That is, the bots’ chatter does not result in retail investors buying the issue. For that, you need finfluencers.

“There is no standard measure for these conversions but one company said that a finfluencer’s video has got stock to the upper circuit in a day,” said a content creator. “That is what they are expecting,” the creator added. The upper circuit is the maximum percentage a stock price is allowed to appreciate from its previous closing price in a single trading session.

What do regulations say? 

Regulations say that IPOs can be advertised through finfluencers but there are compliance requirements to be met.

Anand Kankani, a practising company secretary who specialises in Securities Laws, said that ASCI guidelines “mandate a disclosure label over the content for financial service companies as an advertisement”.

The advertising body has said that disclosures are a must, even if the evaluations are “unbiased”, so long as there is a material connection between the advertiser and the influencer, he said. A material connection is not limited to monetary compensation and it can include free or discounted products from the advertiser to the finfluencer or any other perks given for the service.

Also, the people being approached to make this advertisement and promote it as the next big investment opportunity—which qualifies as investment advice--are not necessarily registered advisors.

Kankani pointed out that finfluencers can offer investment-related advice only after registering with the Securities and Exchange Board of India (Sebi) and by prominently displaying their registration number, alongside their name and qualifications.

Social media posts that use hyperbolic statements, such as ‘double your money’, and hashtags such as #multibaggers go against regulations on IPO advertising.

Companies Act and Sebi (ICDR) regulations are the two statutes which provide for the rules of advertisements, said Kankani, adding that the content of advertisements “must not contain statements which promises or guarantee a rapid increase in promise”.

The content must also comply with other rules such as being truthful, fair and not manipulative; and not containing any statement or promise which is untrue or misleading.

Therefore, these arrangements and social-media posts can be seen as violations and companies try to keep an arm’s length by settling the payment in cash or routing it through a third-party agency.

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The payment  

According to a content creator, companies prefer paying them in cash because they don’t want to leave a paper trail.

The cash is simply handed over to the finfluencer at a predetermined location and the finfluencer may have various businesses and investments, such as in real estate, into which cash can easily be routed. Some have been known to use it to fund personal celebrations, like a marriage, since all payments are done via cash.

“For finfluencers who insist that the payment be made in ‘white’, there are separate arrangements. The company pays the agency and the agency pays the finfluencer as a marketing fee for some other brand that the agency is friendly with and has nothing to do with capital markets,” said the finfluencer.