Welcome to Degen Lawyer's Newsletter, this week we bring you some fascinating news. Every week we serve up curated analysis, hot takes, and expert commentary on all things emerging tech and law, sprinkled with a healthy dose of wacky and meme-worthy. Enjoy!

In this week’s edition:

WHAT’S HAPPENING AROUND THE WORLD

1. Tech companies unite to fight AI misuse ahead of 2024 elections across the world

Big tech is teaming up to stop AI from messing with elections! This year, tons of countries (over 50!) are voting, and sneaky tactics like robotic calls that sound like real people are already popping up. Though the specifics are secret for now, tech giants are joining forces to fight any shady AI trying to influence voters, with many already implementing safeguards in their generative AI tools. The official announcement happens this week at a big security conference in Munich. Such a move will prove significant in heralding self-regulation and instilling a modicum of trust, given all the controversies over privacy that big tech had seen in the last decade.

2. Speed of tech legislation slacks in India

Hold your horses on data privacy rules in India! Minister Chandrasekhar says don't expect them until after the elections. He's hitting pause on other regulations, too, like those for deepfakes and online gaming. Seems the government wants more time to talk things through before making any big moves. So buckle up, the wait continues! After much suspense, tech laws are at a standstill. While the delay has seen criticism from the Parliamentary Standing Committee on Information Technology, the 2024 elections have been prioritised.

3. EU’s Digital Services Act comes into force

Big tech in the EU better clean up their act! The new Digital Service Act has finally come into full force, cracking down on illegal content like hate speech and fake ads, with heftier fines for bigger platforms that don't comply. Kids are shielded from targeted advertising, and reporting bad content or seeking compensation for rule breaks just got easier. Smaller companies get a break from the strictest rules, but everyone's gotta play by the new rules! Europe’s authorities finally have all their teeth. Now we have to sit back and see how they bite.

THIS WEEKS DEEP READ

Understanding SEBI's Action Against Zee Business Guest Experts for Market Integrity

Introduction

In a landmark decision aimed at protecting investor interests and maintaining market integrity, the Securities and Exchange Board of India (SEBI) has taken stringent action against 15 guest experts associated with the Zee Business news channel. These individuals were implicated in a scheme that led to unlawful gains totalling Rs 7.41 crore, by engaging in trading activities contrary to the advice they publicly provided on television. This event underscores the vital role of regulatory oversight in ensuring market fairness and transparency​​​​​​.

Unveiling Unlawful Gains

Unlawful gains refer to profits made through methods or means that are illegal or unethical under the regulatory framework governing financial markets. This concept is broadly defined under various financial regulations and acts, including those enforced by SEBI, to include profits made from insider trading, market manipulation, or any deceptive practices that mislead investors. In this context, the unlawful gains were a direct result of exploiting confidential information or misguiding the public to benefit a select group of individuals at the expense of the general investing populace​​​​​​.

Regulatory Framework

The Securities and Exchange Board of India (SEBI) Act, 1992, and the regulations made under it, provide the framework for dealing with unlawful gains and market manipulation. Two critical aspects of this framework are 

1. The Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market Regulations (PFUTP Regulations) 

2. The Prohibition of Insider Trading Regulations. 

These regulations are key to understanding how SEBI deals with cases of unlawful gains.

1. Prohibition of Fraudulent and Unfair Trade Practices (PFUTP Regulations)

Under the PFUTP Regulations, SEBI prohibits any fraudulent or manipulative practices in the securities market. These practices include making false statements, deceptive behaviour concerning the sale or purchase of securities, and insider trading. The regulations aim to prevent acts that mislead or deceive market participants, which could include providing misleading advice or information that could influence the market prices of securities.

2. Prohibition of Insider Trading Regulations

The Insider Trading Regulations specifically address the misuse of unpublished price-sensitive information. These regulations prohibit insiders, who could be directors, employees, or any person holding a position that gives them access to unpublished price-sensitive information, from trading based on such information. The aim is to ensure that all market participants have access to information equally and that no one benefits unfairly from having privileged information.

3. Enforcement and Penalties

SEBI has the authority to investigate violations of these regulations and take appropriate actions, which can include fines, disgorgement of unlawful gains, and bans from participating in the securities market. The specific sections and penalties depend on the nature and severity of the violation.

• For PFUTP violations, SEBI can impose penalties under the SEBI Act, which may include monetary fines, orders to cease and desist, and debarment from dealing in securities.

• For Insider Trading violations, the penalties can be harsher, given the breach of trust and potential damage to market integrity. These can include imprisonment (under extreme cases as per criminal laws) and significant fines, besides disgorgement of profits made or losses avoided from such trading.

The Contradiction of On-air Advice and Market Positions

In the present case, SEBI's investigation revealed that these guest experts, along with certain profit makers and enablers, orchestrated a scheme where they shared stock recommendations in advance with some entities before broadcasting them on the channel. This allowed them and their associates to profit from the subsequent market movements triggered by their on-air recommendations. This manipulative behaviour not only compromised the trust in the financial advisory provided on television but also jeopardized the interests of the general investing public, who acted on the recommendations without knowledge of the underlying scheme The crux of the SEBI's findings lies in the deliberate actions of the guest experts. For instance, if an expert advised the public to buy a particular stock, they or their associates might have been selling that same stock in anticipation of a price drop. This practice not only misleads investors but also exploits their trust for personal gain, thereby undermining the very foundation of a fair and transparent market​​​​.

Engaging in such contradictory behaviour is ethically and legally wrong for several reasons:

• Misuse of Influence: Financial experts hold significant influence over public perception and investment decisions. Misusing this influence to benefit personally is a breach of ethical standards.

• Market Manipulation: This practice can lead to artificial price movements that do not reflect the true value or performance of a security, distorting the market.

• Investor Trust: It erodes the trust investors place in market advisories and the financial system as a whole, potentially deterring public participation in the stock market​​​​.

SEBI's Response and Investor Education

SEBI's action against these individuals not only involves the repayment of the unlawful gains but also includes restrictions on their future trading activities. This decisive action serves as a deterrent against future unethical practices and highlights the importance of regulatory vigilance. Furthermore, SEBI has emphasised the need for investor education, urging the public to exercise due diligence and critical thinking when considering financial advice, especially that which is freely available on television or social media platforms​​​​.

Conclusion

The SEBI's crackdown on the guest experts of the Zee Business channel is a significant step towards reinforcing the principles of market integrity and investor protection. It serves as a reminder of the potential pitfalls in the financial advisory landscape and the critical importance of regulatory bodies in maintaining a fair playing field for all market participants. As investors navigate through the plethora of financial advice available, it becomes imperative to remain vigilant and informed, underscoring the value of due diligence in investment decision-making processes​​​​​​.

DID YOU KNOW?

In 1973, tech history was made! Martin Cooper, a Motorola engineer, made the first ever call on a portable phone... right on the streets of New York! Imagine, calling someone from a device nearly the size of a shoebox (and weighing as much as two!). This clunky forerunner to our modern smartphones had a talk time of only 35 minutes after a whopping 10-hour charge. Talk about progress!

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