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Announced today by the nation’s corporate watchdog, a former chairman for one of Australia’s top cannabis companies has been taken to Federal Court for alleged market rigging and breaching his duties as a director of two entities.
Adam Blumenthal, who served as a director for both stockbroker EverBlu Capital (EverBlu) and medical cannabis company Creso Pharma (Creso), is facing civil penalty proceedings initiated by the Australian Securities and Investments Commission (ASIC).
Blumenthal stepped down from his position at Creso Pharma, now known as Melodiol Global Health Limited (ASX: ME1), two years ago after the watchdog announced it was looking into “suspected contraventions” by the company, which at the time was surmised to have a connection to EverBlu.
ASIC’s probe revealed that between 18 March and 15 November 2021, EverBlu breached its obligations as an AFS licensee by failing to properly follow procedures and put in place adequate controls relating to the receipt and execution of client orders, the use of its suspense account, the maintenance of records and the management of conflicts of interest.
According to the watchdog, Blumenthal facilitated loans from his own business - Anglo Menda Pty Ltd - to certain EverBlu clients so they could trade in ASX-listed Creso Pharma shares, violating the stockbroker’s personal dealing rules.
This included lending Tyson Scholz, a known market finfluencer and EverBlu client, more than $7 million, and another unnamed client more than $5 million.
The watchdog also alleges that Blumenthal breached his duties as a director of Creso in relation to the engagement of Scholz and another party, whose main trading entity was also an EverBlu client, to provide marketing and promotional services for Creso.
According to ASIC's allegations, Creso paid Scholz more than $2 million and the other party more than $1.2 million in exchange for these services.
The agency also alleges he breached his duties as Creso’s director by failing to avoid a conflict of interest given his financial relationship with Scholz.
READ MORE: Finfluncer ‘ASX Wolf’ banned from offering financial services or advice
ASIC alleges Blumenthal also engaged in market rigging when on 14 occasions he enabled certain client orders to purchase Creso (CPH) shares and separated them into two bids, representing to the market that there were more individual bidders for CPH shares than in fact existed.
ASIC alleged this conduct was likely to have had the effect of creating a misleading appearance with respect to the number of market participants actively trading Creso shares.
The watchdog has accepted a court enforceable undertaking from Blumenthal, meaning he will cease offering financial services for five years.
Under the enforceable undertaking, his corporate advisory company EverBlu will also stop offering financial services to new clients and apply to cancel its Australian Financial Services (AFS) licence.
ASIC’s court proceedings seek orders disqualifying Blumenthal from managing corporations for five years, that he pays a $850,000 penalty, in addition to covering a further $100,000 in litigation costs and $150,000 in investigation costs.
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