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Dumb Money: ASIC urges investors not to gamble it all on meme stocks

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Australian regulators are raising awareness in response to the proliferation of 'pump and dump' schemes.

The Australian Securities and Investments Commission (ASIC) has today rolled out a consumer awareness campaign targeting hype investing and market manipulation — also known as "pump and dump" schemes.

Dubbed 'Don't Get Burnt by Hype', the initiative coincides with the Australian debut of 'Dumb Money,' a film that dives deep into the GameStop short squeeze saga of 2021.

"Pump and dump" schemes typically involve artificially inflating the price of a stock or other asset through false or misleading information to attract unsuspecting investors, only for the orchestrators of the scheme to then sell their holdings at an inflated price.

Thereby, leaving other investors with devalued assets.

If an investment sounds too good to be true — it probably is

In the release, ASIC CEO Warren Day highlights the importance of doing research, especially for novice investors, and the inherent dangers of high-risk speculative stocks.

"Before choosing to invest," Day advises, "people should familiarise themselves with the golden rules of investing and understand the associated risks. They shouldn't believe the hype – if an investment sounds too good to be true, it probably is."

First-time investors, in particular, should be cautious, Day warns. He highlights the inherent volatility and complexities of market trading, especially in speculative stocks, which are known for their high-risk, high-reward nature and uncertain prospects.

His advice is crystal clear: be prepared for the possibility of losing all your invested capital.

"We encourage investors to pause and reflect before investing. Don't get caught up in the hype. Take some time to research investment decisions, go to trusted sources for information, including moneysmart.gov.au," Day added.

Investors warned over social media "pump and dump" schemes

As finfluencers, meme stocks, and social trading gain prominence, ASIC has issued a warning to companies, brokers, and traders regarding their engagement on social media.

Recall the famous event that took place in January 2021 when retail investors harnessed the power of social media, most notably the Reddit group WallStreetBets, to execute a "short squeeze" on the NYSE-listed GameStop.

This surge in retail buying caused GameStop's share price to skyrocket by approximately 2,000% in a single month, only to recede significantly in early February.

Engaging in market manipulation is against the law in Australia, and those found guilty can face penalties of over $1 million in fines and imprisonment for up to 15 years.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

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