Federal Court says Blumenthal market rigging was ‘serious, deliberate’

Jonathan Shapiro and Liam Walsh

Apr 17, 2024 – 5.10pm

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The Federal Court has found stockbroker Adam Blumenthal’s market-rigging breaches of shares in cannabis start-up Creso Pharma were serious, deliberate and repeated.

In a judgment on Wednesday, Federal Court judge Angus Stewart ordered Mr Blumenthal be banned from managing companies for five years and pay an $850,000 penalty, four months after he reached an agreement with the corporate regulator.

The civil judgment rubber-stamped the penalties imposed on Mr Blumenthal, who was deemed to have breached director’s duties and engaged in market rigging in relation to shares in ASX-listed Creso, a micro-cap company he chaired.

Adam Blumenthal reached a civil settlement with ASIC about market rigging. Ben Rushton

He was also ordered pay $100,000 of costs to the Australian Securities and Investments Commission. Mr Blumenthal, who headed Sydney stockbroking firm EverBlu, has also entered an undertaking that he will not be involved in financial services for five years.

The court also ordered a carve-out, with limitations, for Mr Blumenthal’s role in entities that act as trustees for family trusts that have investments.

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The judgment is the latest mark in a long-running probe into Mr Blumenthal and other stock promoters, including his former associate Tyson Scholz, known as ASX Wolf.

ASIC had in November 2021 joined police officers in raids on the premises of Mr Blumenthal and EverBlu in Sydney and those of Mr Scholz on the Gold Coast.

Mr Scholz was eventually found in a civil case to have been operating a financial services business without a required licence. He was bankrupted this year after he failed to pay associated legal fees.

Mr Blumenthal, meanwhile, reached an agreement with ASIC, and admitted to breaching his duties as a director of Creso when he paid Mr Scholz more than $2 million to promote the company and by failing to disclose that his private company lent Mr Scholz $7 million to trade Creso shares.

Charges interrelated

Part of the breaches related to Creso hiring Mr Scholz and paying another $1.2 million to Aldo Sacco for promotional services.

“It is not suggested that Mr Scholz and Mr Sacco did not provide … consultancy, promotional and marketing services to Creso,” Justice Stewart said. “However … there being no metrics put in place to enable the Creso board to assess the value obtained for the money paid. The invoices did not set out the services actually performed. No reports from Mr Scholz and Mr Sacco were sought or provided.”

The court, again on a civil basis, found Mr Blumenthal had engaged in market rigging on 14 occasions in relation to placing orders for clients to purchase shares in Creso.

Justice Stewart said the four charges were 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,” he said.

[The penalties] are a timely reminder to directors of their obligations and that serious consequences are imposed for contraventions.

— Joe Longo, ASIC chairman

He added that the market rigging breaches were serious, deliberate, repeated and that these matters justified the need for a significant penalty.

In an enforceable undertaking filed with ASIC, Mr Blumenthal had admitted Everblu split up trades in Creso from five clients between March and November in 2021.

This move was “intending to represent to the market that there were more individual bidders for Creso shares than in fact existed”, the undertaking stated.

That meant Mr Blumenthal’s actions were likely to create a “false or misleading appearance with respect to the market for Creso shares” – a breach of the Corporations Act section on market-rigging.

ASIC chairman Joe Longo described the penalties as “significant” and said they would act as a deterrent to 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,” he said.

Creso was renamed Melodiol Global Health last year and last traded at 0.4¢.

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