What is this Telegram scam in stock market sand why is the government cracking so hard on Telegram uses in the stock market?

After WhatsApp leaks investigation by SEBI about leaded results in 2017, SEBI is now coming down hard on synchronized buying and front running of stocks using social media and the Telegram communication software. Telegram is a communication tool that does not leave any audit or data trail. This has been to the liking of a lot of rookie advisors in the stock market because now even unregistered advisors could share calls and tips via Telegram.

There are two reasons why SEBI is coming down hard on such trading calls on Telegram. Firstly, players without a SEBI license used Telegram to distribute tips and ideas to clients. This was normally done with upfront subscription fee and the chat pushed up prices of small stocks. Secondly, brokers and traders were front running a stock and then using Telegram and social media to artificially prop up the stock price. Here is why it is dangerous.

Most of these tips are based on fictitious stories like large order or stake buying by an ace investor or possible global M&A news. These are just rumours. However, since these stocks are small sized, the prices move up fast. As retail investors pile on to these stocks, the early entrants take an exit. SEBI has now resorted to raids and confiscating the hardware and electronic equipment used in such cases to establish a link. It is a good move.