Introduction
February 2024 has seen a surge in cumbersome financial losses suffered by citizens as a result of investment in fake stock trading apps. CERT-In also alerted citizens against fake trading apps in the backdrop of financial losses worth 4.4 Cr incurred by them.[1]
Fraudsters more often than not lure victims with online trading courses, seminars, and stock market mentoring programmes using social media platforms like WhatsApp or Telegram. Therafter, they dupe them into downloading fake apps leading to financial losses at a later stage.
In a recent press release[2], SEBI advised investors to be wary and avoid any social media messaging, WhatsApp groups, Telegram channels, or applications that purport to provide stock market access for FPIs or FIIs that are registered with SEBI.
Relevant laws applicable.
Section 61 of the Bhartiya Nyaya Sanhita (erstwhile section 120B of The Indian Penal Code), Criminal Conspiracy:
“(1) When two or more persons agree to do, or cause to be done––
(a) an illegal act; or
(b) an act which is not illegal by illegal means, such an agreement is designated a criminal conspiracy:
Provided that no agreement except an agreement to commit an offence shall amount to a criminal conspiracy unless some act besides the agreement is done by one or more parties to such agreement in pursuance thereof.”
“(2) Whoever is a party to a criminal conspiracy,––
(a) to commit an offence punishable with death, imprisonment for life or rigorous imprisonment for a term of two years or upwards, shall, where no express provision is made in this Sanhita for the punishment of such a conspiracy, be punished in the same manner as if he had abetted such offence;
(b) other than a criminal conspiracy to commit an offence punishable as aforesaid shall be punished with imprisonment of either description for a term not exceeding six months, or with fine or with both.”
Criminal conspiracy is applicable on account of fraudsters collaborating in their endeavour to commit forgery, cheating etc using fake stock trading apps.
Section 317 of Bhartiya Nyaya Sanhita (erstwhile section 419 of The Indian Penal Code), Cheating by personation:
“317. (1) A person is said to “cheat by personation” if he cheats by pretending to be some other person, or by knowingly substituting one person for or another, or representing that he or any other person is a person other than he or such other person really is.
(2) Whoever cheats by personation shall be punished with imprisonment of either description for a term which may extend to five years, or with fine, or with both.”
Fraudsters purport themselves to be from authenticated sources and therefore, cheating by personation applies to them.
Section 316(4) of Bhartiya Nyaya Sanhita (erstwhile section 420 of The Indian Penal Code), cheating and dishonestly inducing delivery of property:
“(4) Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
Fraudsters dishonestly induce the person deceived to transfer some amount having monetary value thereby coming under the ambit of this section.
Section 334 of Bhartiya Nyaya Sanhita (erstwhile section 463, 464 and 464 of The Indian Penal Code), forgery:
“334. (1) Whoever makes any false document or false electronic record or part of a document or electronic record, with intent to cause damage or injury, to the public or to any person, or to support any claim or title, or to cause any person to part with property, or to enter into any express or implied contract, or with intent to commit fraud or that fraud may be committed, commits forgery.
(2) Whoever commits forgery shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.
(3) Whoever commits forgery, intending that the document or electronic record forged shall be used for the purpose of cheating, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
Fraudsters often use false electronic proofs alluding to false profits in stock market trading thereby making the offence of foregery applicable to them.
66C of The Information Technology act, Punishment for identity theft.
“Whoever, fraudulently or dishonestly make use of the electronic signature, password or any other unique identification feature of any other person, shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine with may extend to rupees one lakh.”
66D of The Information Technology act, Punishment for cheating by personation by using computer resource.
“Whoever, by means of any communication device or computer resource cheats by personation, shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine which may extend to one lakh rupees.”
Judicial precedents
Securities & Exchange Board of India v Kishore R. Ajmera[3]:
This case involved the Securities and Exchange Board of India (SEBI) and a broker registered with the Bombay Stock Exchange. The broker was held vicariously liable for fraudulent practices and manipulative trade practices under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations and the Conduct Regulations, 1992.
Securities And Exchange Board of India v. Rakhi Trading[4]:
The adjudicating officer found Rakhi Trading liable for non-genuine trades. On appeal, the Securities Appellate Tribunal (SAT) set aside the order and held that the impugned transactions did not influence the market. However, on further appeal Supreme court held that “The impugned transactions are a manipulative/deceptive device to create a desired loss and/or profit. Such synchronised trading is violative of transparent norms of trading in securities.”
Some precautionary measures to be complied with.
CERT-in alert prescribed certain precautionary measures to be complied with for the citizens.
- Refrain from downloading apps from unaffiliated stores, websites, advertisements, or URLs sent in messages or postings on social media.
- Only download apps from reputable sources, such as reputable websites or approved app stores.
- Before installing, carefully check the programme’s details on the developer’s website or in app stores.
- Make sure you only provide permissions that are absolutely necessary for an app to function.
- Read the privacy statement carefully before providing any authorization.
- Never divulge to third parties your financial app login credentials.
- Turn on multi-factor authentication for any apps that deal with sensitive data.
- Before installing any apps, take the time to read customer reviews and comments.
- Carefully consider the ideas and claims made by the app. Cybercrimes and scams should be reported right away to 1930, or by visiting https://www.cybercrime.gov.in.
Conclusion
Conclusively, it can be said that to mitigate risks associated with fake trading apps, citizens must adhere to precautionary measures prescribed by CERT-In, including downloading apps only from reputable sources, exercising caution with permissions, enabling multi-factor authentication, and reporting cybercrimes promptly. Ultimately, a collective effort involving regulatory bodies, law enforcement agencies, and vigilant citizens is essential to safeguard against the proliferation of fake stock trading apps and mitigate the associated risks effectively.
[1] Somendra Sharma, “CERT-In Alert Citizens Against Fake Trading Apps; Citizens Lost ₹4.4 Crore To Frauds In February 2024” Free Press Journal (Free Press Journal, 2024)available at: https://www.freepressjournal.in/mumbai/cert-in-alert-citizens-against-fake-trading-apps-citizens-lost-44-crore-to-frauds-in-february-2024 (last visited April 10, 2024).
[2] SEBI, Press Release no. 4/2024, available at: https://www.sebi.gov.in/media-and-notifications/press-releases/feb-2024/sebi-issues-advisory-against-fraudulent-trading-schemes-claiming-to-be-offered-to-indian-residents-by-fpis_81733.html
[3] 2016 (6) SCC 368.
[4] “SEBI | Order of Hon’ble Supreme Court in the matter of SEBI Vs. Rakhi Trading and other connected Civil Appeals.,” Sebi.gov.in, 2018 available at: https://www.sebi.gov.in/enforcement/orders/feb-2018/order-of-hon-ble-supreme-court-in-the-matter-of-sebi-vs-rakhi-trading-and-other-connected-civil-appeals-_37831.html
