The Federal Court has ordered Adam Blumenthal, former director of EverBlu Capital Pty Ltd (EverBlu) and Creso Pharma Limited (now known as Melodiol Global Health Limited) (Creso), to pay a penalty of $850,000 and be disqualified from managing corporations for five years following action brought by ASIC.

On 17 April 2024, the Court found Mr Blumenthal:

• engaged in market rigging on 14 occasions in relation to the placing of orders for EverBlu clients to purchase shares in ASX-listed Creso,
• breached his duties as a director of EverBlu in relation to his failure to comply with its compliance policies and causing it to breach its obligations as an Australian financial services (AFS) licensee which jeopardised its interests,
• breached his duties as a director of Creso in relation to the engagement of Mr Tyson Scholz (a client of EverBlu) and another party (whose main trading entity was also an EverBlu client) to provide marketing and promotional services for Creso. Under these engagements, Creso paid Mr Scholz more than $2 million and the other party more than $1.2 million, in the absence of sufficient due diligence or imposing measurable deliverables, and
• breached his duties as a director of Creso by failing to avoid and disclose to its board a conflict of interest, given his financial relationship with Mr Scholz where Mr Blumenthal’s private company, Anglo Menda Pty Ltd, had lent more than $7 million to Mr Scholz to fund his trading in Creso shares.

In handing down the penalty and disqualification, Justice Stewart said:

‘The contraventions are interrelated. They each had their source in Mr Blumenthal’s large shareholding in Creso, his position as the chairman of a financial services licensee with a capacity to employ trading strategies, and his intention of presenting a false or misleading picture to the market for Creso shares. The contraventions concerned fundamental obligations by a senior officeholder in each corporation and, in the case of EverBlu, a senior officeholder who oversaw and participated in the stockbroking services that it provided.’

Justice Stewart observed that the market rigging contraventions in this matter go ‘hand in hand’ with the director’s duties contraventions and ‘also go to the heart of the financial system and the necessity for public confidence in it.’ His Honour added that the market rigging contraventions ‘were serious, deliberate, repeated and occurred over a period of around eight months’ and that these matters justified the need for a significant penalty.

ASIC Chair Joe Longo said, ‘Promoting market integrity and addressing director misconduct are enduring priorities for ASIC. Market rigging is serious misconduct that impacts the integrity of Australia’s financial markets and prevents these markets from operating fairly and transparently.’

‘Today’s penalties are significant and should act as a deterrent to engaging in market misconduct. They are a timely reminder to directors of their obligations, including to avoid conflicts of interest, and that serious consequences are imposed for contraventions to help maintain confidence in the financial system.’

The Court has also ordered Mr Blumenthal to pay $100,000 towards ASIC’s costs of the proceeding.

Mr Blumenthal admitted to contraventions of sections 1041B(1)(b), 180(1) and 181(1)(a) of the Corporations Act 2001 and agreed to the relief the parties proposed to the Court.

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Judgment

Background

On 14 December 2023, ASIC accepted a court enforceable undertaking (CEU) from Mr Blumenthal and EverBlu, by which Mr Blumenthal undertook to not be involved in financial services for five years and Everblu undertook to cease offering financial services to new clients and apply for cancellation of its AFS licence (CEU 031914829). ASIC cancelled EverBlu’s AFS licence, effective on 9 February 2024.

In December 2022, the Federal Court found Mr Scholz had contravened s911A of the Corporations Act by carrying on a financial services business between March 2020 and November 2021, without an Australian financial services licence (22-371MR). The Court subsequently ordered permanent injunctions against Mr Scholz, prohibiting him from carrying on a financial services business in contravention of the Corporations Act (23-096MR).