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Market rigging lands former director $850k fine

3 minute read

A former director has been ordered to pay $850,000 for market rigging offences.

The Federal Court has ordered Adam Blumenthal, former director of EverBlu Capital and Creso Pharma, to pay a penalty of $850,000 and be disqualified from managing corporations for five years following action brought by the Australian Securities and Investments Commission (ASIC).

On Wednesday, the court found 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.

The court also found he breached his duties as a director of EverBlu by failing to comply with its compliance policies, leading it to breach its obligations as an Australian Financial Services (AFS) licensee.

Moreover, the court said Blumenthal breached his duties as a director of Creso by engaging Tyson Scholz, who also goes by the moniker “ASX Wolf”, and another party through EverBlu for marketing services, resulting in payments of over $2 million and $1.2 million without adequate due diligence or clear deliverables.

In addition, the court established that he violated his duties as a Creso director by not disclosing a conflict of interest regarding his financial ties to Scholz where Blumenthal’s private company lent more than $7 million to Scholz to fund his trading in Creso shares.

In handing down the penalty and disqualification to Blumenthal, 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. 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.

Speaking on the matter, ASIC chair Joe Longo said: “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 Blumenthal to pay $100,000 towards ASIC’s costs of the proceeding.

In December 2023, ASIC accepted a court enforceable undertaking (CEU) from Blumenthal and EverBlu, by which 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. ASIC cancelled EverBlu’s AFS licence, effective on 9 February 2024.

In February, ASIC announced it successfully sought sequestration orders in the Federal Court of Australia against Scholz, a social media finfluencer.

The effect of the orders, ASIC said, is to make Scholz bankrupt.

ASIC sought the sequestrations orders after Scholz failed to pay costs ordered by the Federal Court of Australia relating to proceedings brought by ASIC in December 2021.

In April 2023, the Federal Court permanently prohibited Scholz from hosting online groups for which a membership fee is charged without an AFSL, and carrying on a financial services business in Australia.