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Unveiling Securities Fraud: Canvassing in Indian Securities Law

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In the realms of General Law and Intellectual Property, the act of misrepresenting someone else’s identity for gain is commonly termed as ‘Identity Theft’ or ‘Impersonation.’ When this deceptive tactic is applied with the aim of manipulating stock prices, it falls under the category of securities fraud.

Similarly, the term ‘Canvassing’ typically denotes the practice of soliciting or inducing investments from unsuspecting shareholders. This is often achieved by leveraging the reputation or credibility of well-known shareholders or financial influencers (finfluencers). In some instances, these credible individuals or finfluencers may become unwitting victims, while in others, their involvement may be implicit, subject to determination by regulatory authorities.

Securities fraud encompasses manipulative actions in the securities market, prohibited by regulatory bodies worldwide. Entities like the U.S. Securities and Exchange Commission and the Australian ASIC actively investigate and take actions against persons engaged in such activities. SEBI is also endeavoring to crusade against finfluencers or devices adopted by promoters of companies.

In a recent incident in India, some entity named ‘Rare Enterprise’ purchased stocks in the listed company Him Teknoforge Ltd, purportedly causing a 20% surge in stock value. The (mis)information suggested a connection between ‘Rare Enterprises’ which is the well-known investment firm of ace investor late Mr. Rakesh Jhunjhunwala and such a purchase. However, a clarification in the public interest was issued by Rare Enterprises and Ms. Rekha Jhunjhunwala, stating that Rare Enterprises has no affiliation with “Rare Enterprise” and holds “no interest or connection whatsoever with dealings in HIM Teknoforge.” This was done in โ€˜public interestโ€™.

India, governed by SEBI Act and SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003, grants SEBI extensive powers to take appropriate actions in the interest of investors. Impersonation or Identity Theft or Canvassing for manipulating the securities market can manifest in various ways. While not directly mirroring the aforementioned situation, the Companies Act, 2013, in its Chapter III (Sections 36 to 38), outlines civil and criminal consequences for such acts, especially in the context of primary markets concerning the issue and allotment of securities.

For further details on the incident, one may refer to the news appeared in The Economic Times and the CNBC-TV18 in the public interest at https://shorturl.at/kLSU5 and https://shorturl.at/cmDIO

(Disclosure: Regstreet Law Advisors represented Rare Enterprises and Ms. Rekha Jhunjhunwala in communication with SEBI.)

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