Stock tips sans recorded rationale on Whatsapp, Telegram: Sebi fines RA Manish Goel Rs 60 lakh

The order found Manish Goel in violation of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations for giving “sensationalistic” stock recommendations.

Registered analysts who regularly give several one-line stock recommendations through their WhatsApp and Telegram channels on a daily basis may do well to know that the market regulator is considering these communications as “public appearance”. Therefore, as under Section 25 of Research Analyst (RA) Regulations, they will need to maintain reports that explain the rationale for these recommendations.

An order issued by the Securities and Exchange Board of India (Sebi) on August 11, which fined registered analyst Manish Goel Rs 60 lakh for various violations under the Securities and Exchange Board of India (Sebi) Act including for fraudulent and unfair trade practices, stated, “Since Noticee has admitted that he did not maintain records pertaining to the research recommendations made in his Whatsapp/Telegram chats, I find that Noticee has failed to comply with Regulation 25(1) of RA Regulations.”

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Sebi officials had inspected Goel’s records between April 1, 2020, and March 31, 2021 and found that in this period he had collected more than Rs 4.16 crore in fee from 583 clients, charging them for services provided as a research analyst even though he “failed to comply with basic requirements of RA Regulations and also promised assured returns and mis-sold his services to clients and thus, failed to act honestly and in good faith with due skill, care and diligence, and failed to adhere to high professional standard, appropriate standards of conduct and compliance with regulatory requirements”.

In his Whatsapp and Telegram groups, Goel also assured his subscribers that they would get one stock recommendation for free if they suffered any loss from investing based on the recommendation. This the Sebi Adjudicating Officer found to be a promise of assured returns, without any evidence of such an assurance backed by proper research.

Though Goel said that the communication was in the nature of price targets provided by various media channels, the officer stated, “I note that the Whatsapp/Telegram chats sent by Noticee (Goel) which indicate certainty in the outcome of stock price movement are misleading because such certainty of outcome does not manifest in a stock market due to its inherent associate risks.”

The order found him in violation of the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations for giving “sensationalistic” stock recommendations.

Goel was also found in violation of various sections of the Research Analyst (RA) Regulations for acting as a Director and Principal Officer to a Sebi Registered Investment Advisor (RIA) named Multibagger Securities Research & Advisory (MSRAPL). As an RA, he was required to maintain an arms-length relationship between his research activities and other activities.

Arms-length implies “that the investment advisory business of MSRAPL and Noticee’s business as research analyst should have been managed by separate teams and separate accounts should have been maintained w.r.t. revenues from Noticee’s investment advisory business and Research Analyst business.”