The great, big WhatsApp stock market scam and how to avoid it (2024)

Recently, a 71-year-old retired financial professional based in Mumbai lost around Rs 2 crore to a stock market scam perpetrated over the WhatsApp messaging service, as per an Indian Express newspaper report dated June 19. The scamster—a woman—called up the senior citizen over WhatsApp promising an investment opportunity in the equity market. A fake mobile phone application—resembling that of a popular investment firm, for good measure—was also made available to him for download, to make it all look genuine. Then came the killer. A WhatsApp group was created with many other people in it. Someone or the other would regularly take turns to boast about the returns they allegedly made from trading in sharesbased on the advice that the'tipster'gave. This pretence was maintained over a month to win over the victim, who then decided to take the plunge and transferred nearly Rs 2 crore over 24 transactions. A fake account (profit) statement was also shown to the victim saying he had earned Rs 14 crore. The victim suspected something was amiss when he decided to take some money off the table and was instead asked to put in more in the form of withdrawal tax. The case and police investigation are still on.

Separately, Kotak Securities—one of India’s largest brokerage houses— cautioned investors against dealing with unknown people posing as officials of the firm. “Unethical entities and individuals have been conducting fraudulent activities using Indian and international mobile numbers and social media platforms. These individuals/groups falsely claim to be associated with reputed financial institutions like Kotak Securities and showcase fake certificates purportedly issued by regulators, exchanges, or the company,” said Kotak Securities in a media statement it issued on June 20.

Although in this case it wasn’t Kotak Securities’ app that was being impersonated to lure the victim, its spokesperson told Moneycontrol that numerous complaintshad been received by several brokerage houses, including Kotak Securities, about impersonation used to lure gullible investors.

The reality isthat arising stock markethas led to many investors feeling that they are missing out (the FOMO factor). With the S&P BSE Midcap having returned 31 percent (in the last six months) and 61 percent (over the last 1-year period) and the benchmarkS&P BSE Sensex having returned 10 percent (last six months) and 22 percent (over the last 1-year period), respectively, many investors have been wondering if they’re too late to catch the bus. But what if the bus isn’t meant to take them to their investment destination?

Here are the common traps that you should avoid when navigating the stocks markets and investment world.

'We will give you high returns'

Everyone wants to make money from their investments. But we forget to account for the risk we need to take to get there. Take the case of large-cap stocks (represented by the S&P BSE Sensex), mid-cap stocks (represented by the S&P BSE Midcap) and small-cap stocks (represented by the S&P BSE Smallcap index). If you had invested in small-cap stocks in 2022 based on its performance in 2021 (when it gave returns of 63 percent), you’d have been disappointed. In 2022, the S&P BSE Smallcap index lost 2 percent.

That said, it is still okay to invest in legitimate companies whose names and businesses we’ve known and are listed on the stock exchanges. But what happens if you don’t know where your money gets invested? “Anything that gives the impression of being too good to be true is usually a warning sign, for instance, 'schemes' or 'investment opportunities' with very high returns but carrying very low risk. Promises of high returns with little to no risk are red flags. Genuine investments carry a certain level of risk,” says Manthan Shah, managing partner at Wish Worth Wealth, a large Surat-based mutual fund distribution firm.

Be careful ofextravagant promises. Viral Bhatt, founder of Money Mantra, a personal finance solutions firm, shared a WhatsApp message with this writer that he received for an investment offerthat promised “800 percent in 2 months”. These are usually “get-rich-quick schemes”, he says. “Promises of high returns with little risk are usually too good to be true. Do your research on any investment opportunity before committing your money,” he advises.

Avoid phone calls; insist on in-person meetings

In the case of the Mumbai senior citizen, the scamster contacted the victim over the phone. He never seemed to have once met theperson who masqueraded as the investment professional. Andtransferring a substantial sum without due diligence, Rs 2 crorein his case, is a rookie mistake, yet one that many fall prey to, if the scamster sounds convincing over the phone.

“These are unsolicited tips,” says Shah. “If you received tips through text message (SMS), email or social media in which someone tried to convince you thata particular stock is good and you should invest in it, then they could be conning you intoa pump-and-dump scheme.”

A good financial advisor seldommakes unsolicited calls, unless s/he is known to you. At most s/he comes through a solid reference. It’s always best to approach a qualified financial advisor personally,preferably one who comes recommended. Alternatively, there are genuine data sources from where you can find a suitable financial advisor.

Before downloading an app, check the number of downloads and reviews

Beware of WhatsApp groups

Be vigilant when it comes to fake testimonials. This is where con artists use WhatsApp groups to mislead you into thinking that they are dab hands when it comes to the equity market. The modus operandi is simple: they create a WhatsApp group with several of their accomplices and make you part of it. Some members may alsobe other gullible investors who would have been tricked into entering the group and be unwitting witnesses.

The victim of the crime cited in the first instance was conned into not only joining a WhatsApp group where investment ideas were shared, but where several other imposters posted messages of fake gains. A lot of misinformation can get spread through WhatsApp, especially when you are not in a position to verify those claims. That’s how the senior citizen got taken in.

To make a sound investment and grow wealth, it’s best to listen to your financial advisor, instead of noise. Here’s also why physical contact with your financial advisor helps: When you meet your advisor in person, s/he gives you a written investment proposal that you can then “share with family or friends and seek a second opinion”, says Ksh*tija Ravi, director, Gaining Ground Investment Services.

Bhatt says that a lot of people get drawn to WhatsApp groups for the ‘next big idea’ and then fall into a deep trap. Often, he adds, linksare shared which when clicked lead to phishing scams where money gets transferred out of their bank accounts. “Never click on suspicious links or attachments in WhatsApp messages, even if they come from someone you know,” he adds.

'Invest now, now, now'

One way to identify a scam caller is to sensethe urgency or aggression. If the caller wants you to takeprecipitate action—invest money or sign up right away—that's a red flag. Shah calls this a ‘boiler room’ tactic. “Be wary of aggressive sales tactics where you're pressured to invest immediately. Boiler room operations use high-pressure methods to sell questionable stocks. If the salesperson cannot provide detailed explanations about the investment or provide details that can be verified, then it cannot be trusted,” he warns.

“⁠⁠If you can’t understand the underlying investment, better to avoid,” says Ravi.

Is the app authentic?

The victim who fell to the fraud mentioned earlier also downloaded a so-called trading app that resembled that from a well-known brokerage house. So it appears that the caller didn’t just impersonate a totally unknown entity. Most likely, the caller said she worked at that brokerage house. The question is: how do you detect a fake app?

Bhatt suggests checking the number of downloads. He says that if the app has a small number of downloads, its most probably fake. “But even if the number is large, it is not a guarantee of authenticity. Some fraudulent apps may have a large number of downloads as well,” he says.

Step two: check reviews and testimonials on the internet. Add words ‘fake app’, for added measure. If you do your research well, something's bound to come up to save your day.

However, investors must also take their share of the blame. The victim in the WhatsApp scam mentioned above was a finance professional who had Rs 2 crore to spare; his initial investment. When the value of his investment on the application turned up to Rs 14 crore (falsely showing a fictitious gain just to keep him happy), he didn’t appear to blink, as per the Indian Express report. “The communication regarding the allotment/ purchase of stocks in Demat or similar investments could have been verified if investments were made. Why the investor only relied on the false portal shared with him is something to be coughed at; Rs 2 crore becoming 14 crores in the short span itself is something to be coughed at,” says Ksh*tija Ravi.

Investors must also do basic research and not walk into such glaring traps willingly.