*Mustafa Rajkotwala and Vedaant S. Agarwal

(Source: freePik)

The digitization of India’s securities markets has enabled new forms of manipulation that extend beyond wash trades to multi-channel schemes involving coordinated digital promotions by “finfluencers” and algorithmic trading. These tactics exploit retail psychology and expose gaps in the existing regulatory framework. This article proposes the doctrine of comprehensive manipulation as a unified framework that integrates inducement, trading activity, and market impact. Central to the doctrine is a “pattern plus effect” judicial test that requires proof of both orchestrated conduct and resulting artificial market outcomes, supported by multi-source evidence. The test reconciles the Supreme Court’s acceptance of circumstantial indicators in Rakhi Trading case and Kishore Ajmera case with the evidentiary rigor mandated in Balram Garg case. Beyond doctrinal reform, the article highlights policy imperatives including finfluencer regulation, platform cooperation, and advanced surveillance tools. Together, these measures aim to safeguard market integrity and strengthen investor protection in India’s rapidly evolving securities markets.

Introduction

The Indian securities market is evolving rapidly, with manipulation moving beyond wash trades to multi-channel schemes that exploit retail psychology via ‘finfluencers’ and institutional algorithmic trading. Recent SEBI orders in Sadhna Broadcast Limited (“Sadhna Broadcast”) and Jane Street Group (“Jane Street Proceedings”), exemplify these modern forms of abuse and highlight the limits of India’s existing framework, underscoring the need for urgent reforms aimed at addressing the new age market manipulation tactics.

This post examines the ‘doctrine of comprehensive manipulation’ as a solution in tackling modern digital market abuses. Taking a cue from Sadhna Broadcast Case and Jane Street Proceedings, the post illustrates SEBI’s shift toward holistic enforcement strategies that address the full spectrum of manipulation, from false digital inducements to coordinated trading.

Statutory Framework

The SEBI Act, 1992 (‘SEBI Act’) under Section 12A(c) imposes prohibition on employing “manipulative or deceptive device” in dealing with securities of listed entities. Furthermore, SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (‘PFUTP Regulations’), under Regulations 3(a)-(d)  prohibit fraudulent schemes or devices, and Regulations 4(1) and 4(2)(k) extend liability to knowingly disseminating false or misleading information likely to influence investors. Any contravention of these legislations invite enforcement Sections 11, 11(4) and 11B, with penalties under Section 15HA of the SEBI Act.

While SEBI’s powers are broad, existing provisions lack specific scope for finfluencers and algorithmic trading, limiting deterrence and allowing sophisticated coordinated digital abuses to evade prosecution.

Recognizing these gaps, the Supreme Court in SEBI v. Kanaiyalal Baldevbhai Patel (2017) applied ‘liberal interpretation’ to broadly capture novel manipulation techniques under PFUTP Regulations. However, the adequacy of monetary penalties raises concerns, since investor losses in Sadhna Broadcast exceeded INR 58.01 crore disgorgement imposed, thereby questioning proportionality.

India currently lacks a dedicated regime regulating finfluencers beyond research analysts (‘RAs’) and investment advisers (‘IAs’) registration, signaling need for stricter disclosure, licensing, and application of PFUTP Regulations.

Standards of Proof: Preponderance and Circumstantial Evidence

While adjudicating market-manipulation cases, SEBI applies a civil standard of preponderance of probabilities, with the Supreme Court in SEBI v. Kishore R. Ajmera (2016) accepting circumstantial evidence like trading patterns to establish collusion. Similarly, in SEBI v. Rakhi Trading (2018), the Supreme Court endorsed the inference of manipulation where trades were circular and irrational without apparent collusive intent.

SEBI inferred manipulation in Sadhna Broadcast based on circumstantial evidence of coordinated promotion and trading. However, in absence of statutory presumptions or disclosure mandates, courts have expressed skepticism in relying solely on indirect evidence. In Balram Garg v. SEBI (2022), the Supreme Court articulated heightened evidentiary standards, requiring “cogent materials” beyond circumstantial inferences, underscoring the need to clarify acceptable evidence in digital manipulation cases.

These uncertainties underscore the significance of SEBI’s shift toward the ‘doctrine of comprehensive manipulation’, which treats digital promotion, coordinated trading, and market distortion, and investor impact as interlinked components of a unified manipulative scheme, rather than as discrete violations.

From Isolated Violations to Targeted Reform

SEBI’s traditional focus on isolated misconduct like pump-and-dump or insider trading is inadequate for modern multi-channel schemes. The doctrine of comprehensive manipulation shifts attention to coordinated patterns and cumulative effects. In Sadhna Broadcast, SEBI linked promotions, trading, and price manipulation into a single scheme, sanctioning 59 entities. The Jane Street Proceedings extended the doctrine to institutional contexts, where coordinated stock and options trades were alleged to distort index levels, leading to INR 4,843 crore being impounded. Together, these cases show that comprehensive manipulation is both technology-agnostic and scale-flexible.

To operationalize the doctrine, regulators must define clear standards capturing both the pattern and cause of manipulative schemes , in the following manner:

Scope and ambit: ‘Comprehensive manipulation’  encompasses: (i) multi-actor, multi-channel coordinated schemes involving, (ii) promotional inducements through digital platforms, (iii) coordinated trading activity across market segments, including but not limited to algorithmic trading, aimed at (iv) systematic manipulation of market prices, and (v) resulting in exploitation of retail investors.

Rationale and Operation: A pattern-based, and cause-plus-effect, standard would allow regulators and courts to evaluate entire schemes holistically, ensuring that market integrity is preserved from finfluencer-led promotions to complex institutional trading strategies.

Proposed Judicial Test: The doctrine should embrace a “pattern plus effect” standard, where liability arises if:

• Pattern: Coordinated trading, cross-platform promotion, and trading behavior lacking economic rationale.

• Effect: Artificial or fraudulent market outcomes, including abnormal price movements, and increased volatility.

• Safeguard: Safe harbors for bona fide educational content, investment research, and properly disclosed communications.

The proposed “pattern plus effect” test advances current law by providing a holistic framework that integrates trading behavior, digital promotion, and market impact into a single evaluative standard. Earlier cases such as Rakhi Trading and Kishore Ajmera accepted circumstantial evidence like trading patterns in isolation, while Balram Garg raised the evidentiary threshold by requiring direct “cogent materials.” In contrast, the pattern plus effect test requires proof of both a coordinated trading pattern and the resulting market effect, supported by multi-source evidence. This approach reflects the complexity of modern multi-channel manipulation schemes while ensuring that enforcement rests on verifiable proof, thereby balancing effective regulation with the protection of legitimate market conduct.

To address evidentiary challenges, particularly those emphasized in Balram Garg, the proposed pattern-plus-effect standard must incorporate rigorous safeguards. While earlier Supreme Court rulings in Rakhi Trading and Kishore Ajmera accepted circumstantial evidence such as synchronized trading patterns to infer manipulation, Balram Garg raised the evidentiary threshold by requiring “cogent materials” beyond mere inference. The doctrine of comprehensive manipulation advances current law by mandating a structured, multi-tier evidentiary framework encompassing:

• Primary Evidence: Direct communications among participants, digital traces, or financial records.

• Supporting Evidence: Trading patterns, promotional materials, or timing analyses.

• Converging Proof: Manipulation demonstrated through multiple strands of evidence rather than inference alone.

• Safe Harbors: Explicit protection for legitimate educational materials or properly disclosed research.

By setting clear thresholds for proof and integrating direct documentary evidence, this doctrine carefully balances the earlier acceptance of circumstantial evidence with Balram Garg’s demand for cogent proof. It ensures enforcement actions are grounded in robust, verifiable evidence, effectively addressing judicial concerns about overreliance on circumstantial patterns, while safeguarding the rights of bona fide market participants.

Proportionality in Sanctions

The proportionality standard was reinforced in SEBI v. Bhavesh Pabari (2019), where the Supreme Court held that judicial interference with penalties is warranted only if the quantum is “wholly arbitrary and harsh which no reasonable man would award.”  This approach aligns with the principle of “graduated enforcement” observed in MBL & Company Ltd. v. SEBI and NSDL v. SEBI, where the Supreme Court emphasized that sanctions must correspond to the degree of culpability and benefit derived.

In Sadhna Broadcast, SEBI imposed differentiated sanctions: five-year bans for orchestrators, one-year suspensions for peripheral participants, and disgorgement across all 59 entities depending upon the gain derived. SEBI’s graduated sanctions align deterrence with culpability. Future frameworks should incorporate structured assessments of investor losses and systemic effects when justifying sanctions. The ‘doctrine of comprehensive manipulation’ should extend proportional sanctions to orchestrators, and such promoters equally.

Comparative Perspectives: International Convergence

In Australia, the ASIC had introduced INFO Sheet 269, whereby it had extended licensing requirements under the Corporations Act, 2001 to finfluencers, who feature or promote financial products, and warned against misleading, deceptive and unlicensed financial advice, punishable with imprisonment of five years and penalties amounting to millions of dollars. Post introduction of INFO Sheet 269, ASIC noticed significant drop in misleading and deceptive financial content. In fact, ASIC coordinated with regulators from the United Kingdom, United Arab Emirates, Italy, Hong Kong and Canada to take actions against unauthorized finfluencers and warn investors against misleading content by so-called financial experts.

In the United States of America, SEC had introduced express disclosure norms and extended FTC’s endorsement guidelines to finfluencers. Through these guidelines the SEC requires the influencers to transparently disclose material connections with brands, businesses, and partners that might affect the credibility of such financial endorsements. In 2022, SEC  charged eight social-media influencers for a USD 100 million pump-and-dump scheme conducted on Twitter and Discord, explicitly recognising online inducements and coordinated trading as inseparable elements of market abuse.

Similarly, in the United Kingdom, the FCA issued Guidance on financial promotion on social media, requiring firms and influencers to ensure that financial promotions on social media should be fair, clear and not misleading. The intent was to ensure compliance with Financial Services and Markets Act, 2000 and prohibit unauthorized inducement to engage in investment activity. Notably, the FCA has undertaken extensive enforcement against ‘finfluencers,’ shutting down over 1,600 websites and intervening in over 20,000 non-compliant financial promotions.

By contrast, India lacks a codified finfluencer regime, platform liability laws, and coordinated cross-border enforcement.

The strength of global regimes lies as much in institutional design as in substantive rules. The SEC relies on integrated surveillance and high penalties, while the ASIC on cross-sectoral coordination. India, by contrast, deploys fragmented regulatory framework, and weaker sanctions. These differences show why global models cannot be transplanted and why a doctrine of comprehensive manipulation must be adapted to India’s context, equipping regulators to tackle cross-platform manipulation, and strengthen protection for retail investors.

Policy Implications and Compliance Challenges

Recent Indian jurisprudence highlights the limits of ex-post enforcement and the need for regulatory safeguards:

1. Finfluencer Regulation: SEBI’s 2023 consultation paper on ‘fin-fluencers’ and its 2025 IA guidelines / RA guidelines must be finalized to curb paid referrals by unregistered entities, mandate disclosure of sponsored content, and impose liability on financial advertisers.

2. Platform Cooperation: Coordination with the MIB and MEITY can enable fast-track takedowns, track advertisement trails, and data-sharing with SEBI. Effective enforcement also needs cross–platform information sharing, standardised reporting of suspicious promotions, and automated tools to flag manipulative content.

3. Issuer-Level Controls: Listed companies should implement “social-listening” to monitor online promotions linked to their securities, establish pre-clearance protocols for third-party promotions, and identify abnormal price/volume movements.

4. Advanced Surveillance: SEBI may deploy AI-based surveillance linking promotional activity with order-book data across platforms to detect manipulation in real time, but such tools must adhere to privacy norms and be independently overseen to avoid false positives.

Conclusion

The doctrine of comprehensive manipulation signals a turning point, with Sadhna Broadcast establishing precedent for integrated enforcement over promotion, trading, and investor conduct. It extends beyond pump-and-dump to institutional index and derivatives manipulation, making it technology-neutral and scale-flexible. To be effective, enforcement must combine ex-post sanctions with ex-ante safeguards, including a statutory finfluencer regime, platform cooperation, and clear evidentiary standards. Above all, the doctrine establishes that digital promotion, coordinated trading, and investor psychology are central to the preservation of market integrity under securities law.

*Mustafa Rajkotwala is a commercial lawyer based in Mumbai, India. He graduated from NALSAR University of Law, Hyderabad and advises on corporate and transactional matters.

Vedaant S. Agarwal is a commercial lawyer based in Mumbai, India. He graduated from National Law University, Jodhpur and advises on corporate and transactional matters.