Lost money after following a finfluencer’s stock tip? Here’s when you can seek legal recourse

The rise of finfluencers has made stock market advice more accessible for investors, especially for those who do not want to spend extra money on hiring a professional advisor, but it has also left some of them nursing losses after acting on social media recommendations.

According to a recent report by CFA Institute, only 6.3% of finfluencers are registered with the Securities and Exchange Board of India (SEBI), even as one in three continue to make explicit stock recommendations.

This highlights a gap between regulated investment advice and financial content shared online, prompting the markets regulator to caution investors against social media accounts offering 'live trading strategies' and real-time stock market tips, that may amount to unregistered investment advisory services.

Sebi on Monday said that live market data cannot be shared by entities or individuals except for purposes linked to the orderly functioning of the securities market or meeting regulatory requirements.

An investor can initiate a formal complaint against a finfluencer for giving misleading stock recommendations but not simply because the investment resulted in a loss, according to Diviay Chadha, Partner at Singhania & Co.

“If the influencer was unregistered, gave misleading advice, manipulated prices, or failed to disclose a conflict of interest, the investor should preserve the evidence and report the matter to SEBI. Recovery of the loss may require separate legal proceedings,” he noted.

Meanwhile, Managing Partner at TARAksh Lawyers and Consultants Kunal Sharma, added that Sebi can take action against finfluencers who provide unregistered investment advice or stock recommendations for consideration, including through indirect monetisation such as course sales, subscriptions, sponsorships or affiliate commissions.

It can also act against undisclosed conflicts of interest, market manipulation and misleading claims. In such cases, the markets regular may impose penalties, bar individuals from the securities market, order disgorgement of unlawful gains and where applicable, direct refunds to affected investors, Sharma added.

Some content creators often use a disclaimer that says “this is not a financial advice” but that does not automatically protect them if the content amounts to a specific stock recommendation or is misleading claims , said Supriya Majumdar, Partner at Elarra Law Offices.

Thus, the investor must watch out for the content indication, language and insinuations to judge whether the same is beyond the ambit of education in case of unregistered finfluencers, she added.

The first step is to verify a finfluencer’s credentials, including their SEBI registration status and relevant certifications.

The following Sebi-recommended website: www.bseindia.com/iara/ia_member , allows investors to verify Sebi registration claims.