How Hibox app scammed investors of Rs 500 cr with YouTubers' help: Decoded

The Delhi Police on Thursday summoned popular YouTuber Elvish Yadav, comedian Bharti Singh, and three other social media influencers in connection with an alleged scam involving the HIBOX mobile application. The app, according to police reports, lured investors with promises of guaranteed returns and resulted in a fraud estimated at Rs 500 crore. “HIBOX is a mobile application that was part of a well-planned scam,” Deputy Commissioner of Police (IFSO Special Cell) Hemant Tiwari explained.

The investigation follows over 500 complaints filed with Delhi Police, in which users accused various influencers and YouTubers of promoting HIBOX on their platforms and enticing followers to invest.

 

Background of the case

On 16 August, the Intelligence Fusion & Strategic Operations (IFSO) unit received a complaint from 29 individuals alleging that they were duped by the HIBOX app. The complainants stated that they were promised daily returns of 1% to 5%, leading to potential monthly returns of 30% to 90%. In response, the police launched a probe, uncovering the involvement of several popular social media personalities.

Those named in the investigation include:

Saurav Joshi

Abhishek Malhan

Purav Jha

Elvish Yadav

Bharti Singh

Harsh Limbachiya

Lakshay Choudhary

Adarsh Singh

Amit

Dilraj Singh Rawat

Modus operandi

Police reports reveal that Sivaram, a 30-year-old resident of Chennai and the alleged mastermind, promised investors substantial monthly returns through the app, which launched in February 2024. The platform initially delivered high returns, encouraging more people to invest. However, since July, HIBOX allegedly began withholding payments, citing various issues such as technical glitches, legal troubles, and GST complications.

DCP Tiwari noted, “The alleged companies behind HIBOX shut down their Noida office in Uttar Pradesh before disappearing.”

EASEBUZZ and PhonePe under scrutiny

Investigations also indicate potential negligence from payment gateway companies EASEBUZZ and PhonePe, as these platforms were used to facilitate transactions for HIBOX. “To date, 127 complaints have been consolidated, and the roles of EASEBUZZ and PhonePe are under scrutiny,” DCP Tiwari stated. The police suspect that these companies might have bypassed proper verification procedures and ignored Reserve Bank of India guidelines while setting up merchant accounts for the HIBOX operators.

Who can give stock market advice?

The Securities and Exchange Board of India (Sebi) has clear rules on who can provide stock market advice to ensure investor protection. "To combat misinformation and safeguard retail investors, Sebi established the Sebi (Investment Advisers Regulations) 2013 and Sebi (Research Analysts) Regulations 2014. These regulations ensure that only qualified, registered entities can provide accurate, well-researched investment advice tailored to clients' needs," said Sanjay Israni, Partner at Desai & Diwanji.

These regulations lay down specific qualifications and certification requirements for investment advisors (IAs) and research analysts (RAs). "IAs offer personalised investment advice for a fee, while RAs conduct research on securities and make buy/sell/hold recommendations. Both must adhere to strict compliance standards, including disclosing conflicts of interest, maintaining confidentiality, and following a code of conduct," Israni explained.

Sebi's stance on unregistered finfluencers

Sebi has raised concerns about finfluencers, many of whom operate as unregistered entities. These individuals often engage in activities that overlap with those of registered advisors without meeting the necessary qualifications or compliance requirements. Additionally, Sebi has observed cases where unregistered finfluencers collaborate with registered entities for undisclosed compensation, using their influence to sway investor decisions.

This conduct violates Section 12-A of the Sebi Act, 1992, and Regulation 4 of the Sebi (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003. These regulations prohibit fraudulent, misleading, or manipulative conduct in the securities market, including knowingly spreading false information that could affect investment decisions.

Regulating misinformation through finfluencers

In June 2024, Sebi approved new norms aimed at curbing misinformation spread by finfluencers by restricting the association of its regulated entities with any unregistered persons. The decision followed Sebi's consultation paper released on August 25, 2023, which addressed the concerns regarding finfluencers and their role in the financial sector.

"Finfluencers registered with Sebi, stock exchanges, or the Association of Mutual Funds in India (AMFI) are now required to prominently disclose their registration number, contact details, and investor grievance redressal helpline in their content. This is in line with Addendum II of the Advertising Standards Council of India (ASCI) Guidelines, which mandates that influencers in the banking, financial services, and insurance (BFSI) sector must possess the necessary qualifications to offer advice to the public," Israni said.

Should influencers engage in financial activities?

Influencers often rely on their freedom of speech and expression to engage in financial promotions. However, there are potential risks and responsibilities that they need to consider when offering financial advice or promoting stock market investments.

Israni elaborated:

1. Potential risks: Influencers without the necessary qualifications might unintentionally mislead their audience, causing potential financial losses for their followers.

2. Accountability: Promoting unverified financial products exposes influencers to legal risks. Regulatory bodies may penalise influencers for non-compliance or for providing misleading information.

3. Ethical responsibility: Influencers have a moral duty to deliver accurate information and should avoid endorsing financial products without being fully informed.

4. Transparency: Influencers must disclose their qualifications and any partnerships with the financial products they promote to maintain trust with their audience.

5. Long-term reputation: Providing credible, ethical financial advice can enhance an influencer's reputation, leading to a more loyal following.

6. Educating the audience: By focusing on financial literacy rather than merely promoting products, influencers can empower their followers to make informed decisions.

Rise in digital fraud cases

According to the Indian Cybercrime Coordination Centre (I4C), over 100,000 cases of investment scams were reported in 2023. In the first four months of 2024 alone, Indians lost approximately Rs 1,760 crore due to digital fraud:

• Rs 120 crore lost in 4,599 digital fraud cases
• Rs 1,420 crore lost in trading scams through 20,043 cases
• Rs 222 crore lost in 62,687 investment scam complaints