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Adam Blumenthal, a former director of EverBlu Capital and Creso Pharma, has been ordered by the Federal Court to pay a fine of $850,000 and has been disqualified from managing corporations for five years, following action brought by the corporate watchdog for breaching his duties.
The court found today that Blumenthal breached his duties as a director of Creso Pharma, now known as Melodiol Global Health (ASX: ME1) by engaging ‘ASX Wolf’ Tyson Scholz to provide marketing and promotional services for the company even though the social media 'finfluencer' was also a client of EverBlu where Blumenthal also served on the board.
Creso paid Scholz more than $2 million for these services, and more than $1.2 million to another EverBlu client engaged by Blumenthal, in the absence of sufficient due diligence or imposing measurable deliverables.
The court also found that Blumenthal breached his directorial duties at Creso by failing to avoid and disclose to its board a conflict of interest, given his financial relationship with Scholz whereby Blumenthal's private company Anglo Menda had lent more than $7 million to the influencer in order to fund his trading in Creso shares.
Related stories: ASIC takes former Creso Pharma chairman to court over alleged market rigging, duty breaches
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It was also determined that 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, and breached his directorial duties at 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, thus jeopardising its interests.
"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," Justice Stewart said in handing down the penalty and disqualification.
"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.’
He 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.
"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," said Australian Securities and Investments Commission (ASIC) chair Joe Longo.
"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 Blumenthal to pay $100,000 towards ASIC’s costs of the proceeding.
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