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Fear & Greed, Fear and Greed

There seems to be an endless stream of get rich quick schemes, but anyone laying down their hard-earned cash should familiarise themselves with the different rules of investing and the associated risks.

ASIC last week launched a consumer campaign to raise awareness of the risks associated with investment hype. Sean Aylmer talks with Calissa Aldridge, executive director of markets at ASIC about investment scams.

Find out more: https://fearandgreed.com.au

See omnystudio.com/listener for privacy information.

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Sean Aylmer: Welcome to the Fear and Greed business interview. I’m Sean

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Sean Aylmer: Aylmer. There seems to be an endless stream of get- rich-

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Sean Aylmer: quick schemes, which is kind of surprising because I’m not

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Sean Aylmer: sure I’ve ever met anyone getting rich quick using one

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Sean Aylmer: of those schemes anyway. Investing is almost always a long-

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Sean Aylmer: term game, and anyone laying down their hard- earned cash

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Sean Aylmer: should familiarize themselves with the different rules of investing and

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Sean Aylmer: the associated risks. Importantly, don’t believe the hype around an

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Sean Aylmer: investment. If it sounds too good to be true, well,

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Sean Aylmer: it probably is.
The corporate regulator, the Australian Securities and

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Sean Aylmer: Investments Commission, last week launched a consumer campaign to raise

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Sean Aylmer: awareness of the risks associated with investment hype, to coincide

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Sean Aylmer: with the Australian release of Dumb Money, a new film

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Sean Aylmer: about the GameStop short squeeze episode a couple of years

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Sean Aylmer: ago. It provides an opportunity to have a chat about

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Sean Aylmer: investment scams with Calissa Aldridge, Executive Director of Markets at

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Sean Aylmer: ASIC. Calissa, welcome to Fear and Greed.

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Calissa Aldridge: Thanks, Sean. I’m happy to be here.

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Sean Aylmer: So just very quick, for those who don’t know the

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Sean Aylmer: GameStop story because it’s kind of an interesting tale, very

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Sean Aylmer: briefly, what was it exactly?

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Calissa Aldridge: It’s a story about hype, I guess at its essence.

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Calissa Aldridge: A number of retail investors who got together and decided

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Calissa Aldridge: that hedge funds and others had taken too big a

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Calissa Aldridge: short positions against a company called GameStop, and they decided

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Calissa Aldridge: that they would try to push up the price of

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Calissa Aldridge: that stock, which would mean that those hedge funds would

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Calissa Aldridge: essentially be squeezed and force them to purchase back the

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Calissa Aldridge: stock at much higher prices. Which is the outcome that

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Calissa Aldridge: they had, and I think probably much more successful than

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Calissa Aldridge: they intended, with prices going up by about 2, 000%.

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Sean Aylmer: Okay. I want to dig into that in a moment,

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Sean Aylmer: but let’s get 101 here. So for retail investors, what

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Sean Aylmer: are some of the main rules they should be following

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Sean Aylmer: when investing?

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Calissa Aldridge: Well, not so much about the rules, but just some

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Calissa Aldridge: of the main practices that they should be following. I

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Calissa Aldridge: think really to avoid the hype, be really careful about

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Calissa Aldridge: where they’re getting their information from and what the interests

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Calissa Aldridge: of the other parties might be when they’re investing. But

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Calissa Aldridge: they do need to make sure they’re careful to not

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Calissa Aldridge: use information that they might’ve received through channels that might

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Calissa Aldridge: amount to incite information, for example. But in this case,

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Calissa Aldridge: if you’re actively participating and encouraging others to invest in

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Calissa Aldridge: a way with an intention of influencing prices, that may

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Calissa Aldridge: amount to market manipulation, which is a criminal offense in Australia.

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Sean Aylmer: Okay. I mean, just getting into that GameStop detail, when

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Sean Aylmer: a professional investor is shorting a stock, essentially they’re betting

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Sean Aylmer: that the stock will go down. And as you explained,

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Sean Aylmer: you had retail investors, they had the ability to push

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Sean Aylmer: the price up. How did they do that? How do retail

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Sean Aylmer: investors do that?

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Calissa Aldridge: In this example, the use of social media. Somebody who

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Calissa Aldridge: had a lot of followers and then they just gained

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Calissa Aldridge: a lot of momentum, and they all started trading around

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Calissa Aldridge: the same time in the same direction and were able

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Calissa Aldridge: to push the price up by continuing to put orders

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Calissa Aldridge: in the market at higher prices. And as I said,

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Calissa Aldridge: the price went up really significantly and it resulted in

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Calissa Aldridge: significant losses, not just for the hedge funds that might’ve

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Calissa Aldridge: had short positions, but also for a range of other

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Calissa Aldridge: investors who bought on the way up or at the

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Calissa Aldridge: top, because the price came down quite significantly and will

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Calissa Aldridge: have lost out when it came back down.

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Sean Aylmer: Okay, so GameStop is an extreme. Does that sort of thing happen

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Sean Aylmer: on the Australian market?

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Calissa Aldridge: It can. And so back during that GameStop period, we did

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Calissa Aldridge: have a range of these incidents happening here. Actually towards

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Calissa Aldridge: the end of 2021 it was, where we saw really

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Calissa Aldridge: concerted efforts to pump and dump on ASX listed securities,

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Calissa Aldridge: to the point that there were a number of forums

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Calissa Aldridge: on different social media channels called ” ASX pump and dump,”

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Calissa Aldridge: where they were very explicit with naming specific entities that

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Calissa Aldridge: they wanted to target, what price they wanted to hit,

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Calissa Aldridge: and when they would commence the buying or the placement

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Calissa Aldridge: of orders. So it was very, very explicit. We took

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Calissa Aldridge: some action back then, which was the first time for

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Calissa Aldridge: us at the time to enter those chat rooms and

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Calissa Aldridge: provide warnings to those people who are part of it,

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Calissa Aldridge: that this is potentially criminal action activity and that they

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Calissa Aldridge: need to be very careful.
But also just on GameStop

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Calissa Aldridge: itself, an interesting fact I’m not sure many people are

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Calissa Aldridge: aware of, is its ticket code that you trade on

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Calissa Aldridge: in New York Stock Exchange is GME. In Australia we

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Calissa Aldridge: have a company GME Resources that has the same ticker

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Calissa Aldridge: code, and we saw a significant increase in its share

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Calissa Aldridge: price because many Australian investors thought they were participating in

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Calissa Aldridge: the GameStop movement, but actually they were buying into a

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Calissa Aldridge: local resource company here. So the confusion buying into things

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Calissa Aldridge: that you don’t fully understand, that confusion resulted in losses

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Calissa Aldridge: for investors in our domestic market who bought into the

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Calissa Aldridge: wrong company.

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Sean Aylmer: Stay with me, Calissa, we’ll be back in a minute.
My guest today

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Sean Aylmer: is Calissa Aldridge, Executive Director of Markets at ASIC. Is

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Sean Aylmer: that sort of behavior very prevalent, an example of the

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Sean Aylmer: pump and dump scams, but what other sort of scams

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Sean Aylmer: are you seeing on the local market here?

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Calissa Aldridge: I wouldn’t say that that’s pervasive. I think we certainly

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Calissa Aldridge: saw quite a lot of it during that period of

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Calissa Aldridge: time. We don’t see a huge amount of it now,

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Calissa Aldridge: but it’s still there, particularly in some of the smaller

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Calissa Aldridge: cap securities where there’s less liquidity and it can be

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Calissa Aldridge: a little bit easier to move prices around.
The other

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Calissa Aldridge: thing we’ve seen for a long time but I think

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Calissa Aldridge: social media probably makes it easier, is just hyping companies

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Calissa Aldridge: and fake news. So sharing of fake news, trying to

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Calissa Aldridge: encourage other people to participate in investments, plus a range

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Calissa Aldridge: of other related scams related to financial markets. We see

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Calissa Aldridge: quite a number of what we call imposter bond scams

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Calissa Aldridge: at the moment in fake prospectuses, where they’re using legitimate

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Calissa Aldridge: material or it appears to be legitimate material and companies

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Calissa Aldridge: that are very well known, to try to encourage investors

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Calissa Aldridge: to buy into something that ultimately ends up being a fake.

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Sean Aylmer: In that instance, so it might be a large cap,

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Sean Aylmer: let’s call it ABC, we won’t put anyone on the

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Sean Aylmer: spot there, and they’re issuing, well, apparently the prospectus says

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Sean Aylmer: they’re issuing bonds, and people are buying those bonds which

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Sean Aylmer: turn out to be fake bonds or in fact no

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Sean Aylmer: bonds at all. Is that what you’re saying?

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Calissa Aldridge: Yeah. The case of the prospectuses issuing different types of

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Calissa Aldridge: securities, and the bond scam ones are around buying directly

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Calissa Aldridge: into bonds. That’s right. And they are very well- known

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Calissa Aldridge: companies. So there are a lot of investors who will have

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Calissa Aldridge: confidence in those companies, and even though the returns look

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Calissa Aldridge: better than investors might otherwise expect, they’re not so significant

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Calissa Aldridge: that it looks like an obvious scam.
We’re seeing more

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Calissa Aldridge: and more of those sorts of scams, in addition to

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Calissa Aldridge: just that constant cycle of people chasing get- rich- quick

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Calissa Aldridge: initiatives. So there’s a heap of scams around crypto, for

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Calissa Aldridge: example, and our data shows that there’s a really significant

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Calissa Aldridge: proportion, particularly of younger investors, who do own crypto. Our

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Calissa Aldridge: survey that we ran last year for under 25- year-

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Calissa Aldridge: olds showed that 10% of Australian investors are within that

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Calissa Aldridge: under 25- year- old category, and around a third of

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Calissa Aldridge: them are investing in crypto. And many of them may

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Calissa Aldridge: be buying crypto and holding it, that many others we

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Calissa Aldridge: know are getting caught in crypto related scams.

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Sean Aylmer: Okay, a couple of things. How do you stop yourself

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Sean Aylmer: being scammed? Are there just a few basic steps you

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Sean Aylmer: should do if you get an unsolicited prospectus from a

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Sean Aylmer: major bank, for example, or someone trying to sell you Bitcoin?

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Calissa Aldridge: Yeah, absolutely. Don’t click on anything that might be sent

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Calissa Aldridge: to you or don’t respond if you’re getting cold calls

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Calissa Aldridge: over the phone or text messages. If you see something

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Calissa Aldridge: that might be of interest, go to the actual website and

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Calissa Aldridge: make sure you’re clicking onto the original website of the

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Calissa Aldridge: entity and try to find the documentation on their websites.

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Calissa Aldridge: Look for things like phone numbers, are they the same

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Calissa Aldridge: phone numbers. Or if they’re asking you to deposit money

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Calissa Aldridge: into certain bank accounts, just check that those sorts of

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Calissa Aldridge: details look as though they’re legitimate. And if all else

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Calissa Aldridge: fails, you can always try calling the entity itself and

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Calissa Aldridge: asking them if it’s a legitimate offer.

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Sean Aylmer: Okay. What about the role of influencers? And so the

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Sean Aylmer: GameStop is an example where they weren’t even high- profile

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Sean Aylmer: influencers so it just seemed to gather a crowd with them.

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Sean Aylmer: We’ve had people as high profile as Kim Kardashian paying

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Sean Aylmer: fines about promoting things, which perhaps she wasn’t totally (inaudible)

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Sean Aylmer: with. How dangerous is that, I suppose, for influencers

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Sean Aylmer: to be spruiking investments and to be listening, or for

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Sean Aylmer: people to be listening to those people?

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Calissa Aldridge: Yeah, this is happening. This is happening a lot, and

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Calissa Aldridge: I think there’s a range of different influencers. I think

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Calissa Aldridge: there are some, so in the Kim Kardashian example, where

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Calissa Aldridge: different people might have different views about her experience and

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Calissa Aldridge: understanding of the various things that she’s spruiking. And there

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Calissa Aldridge: are others who talk very knowledgeably about the information or

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Calissa Aldridge: the products that they’re recommending or encouraging people to get

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Calissa Aldridge: involved in. And some of them might even be licensed

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Calissa Aldridge: and really have a real basis for making some of

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Calissa Aldridge: the comments.
Clearly, there’s been lots of really great information

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Calissa Aldridge: that is out there as well. I think during a

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Calissa Aldridge: period of time during that pandemic period, we had a

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Calissa Aldridge: really significant influx of new retail investors to markets, and

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Calissa Aldridge: it was really important for them to access information quickly

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Calissa Aldridge: and learn about the way that markets function and the

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Calissa Aldridge: rest of it. And that’s been a real benefit.
But

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Calissa Aldridge: also just assume that everything that you’re hearing from influencers,

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Calissa Aldridge: that they might have an ulterior motive in giving you

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Calissa Aldridge: that information. They may be paid for referrals, they may have

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Calissa Aldridge: an interest directly in whatever it is they’re encouraging investors

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Calissa Aldridge: to get involved in, so they might benefit from any

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Calissa Aldridge: price increases. I think just apply that sort of logic

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Calissa Aldridge: to any investment decisions and always go away and do

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Calissa Aldridge: your own research. And we say our Moneysmart website is

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Calissa Aldridge: a really great place to start.

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Sean Aylmer: Calissa, thank you for talking to Fair and Greed.

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Calissa Aldridge: Thanks for having me.

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Sean Aylmer: That was Calissa Aldridge, Executive Director of Markets at ASIC.

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Sean Aylmer: This is the Fair and Greed business interview. Join us

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Sean Aylmer: every morning for the full episode of Fear and Greed,

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Sean Aylmer: Australia’s best business podcast. I’m Shauna Aylmer, enjoy your day.