The Australian Securities and Investments Commission ASIC has announced that Adam Blumenthal, former director of EverBlu Capital and Creso Pharma Limited (now known as Melodiol Global Health Limited), will pay a penalty of $850,000 and be disqualified from managing corporations for five years following action brought by ASIC.
The court found that Blumenthal breached his duties as a director of Creso in relation to the engagement of Tyson Scholz (a client of EverBlu), a social media finfluencer that has been prohibited from carrying on a financial services business in Australia 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 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
It also found that he 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 Scholz where Blumenthal’s private company, Anglo Menda, had lent more than $7 million to Scholz to fund his trading in Creso shares.
Blumenthal, the Court added, 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 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.
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 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.
