MIU – Issue 158 – April 2024

Former corporate adviser sentenced to two years’ imprisonment for insider trading

Former corporate adviser, Cameron Kerr Waugh, has been sentenced to two years imprisonment, with release after nine months on the condition of good behaviour for 15 months.

At a Supreme Court of Western Australia hearing on 26 March 2024, Mr Waugh was sentenced for insider trading offences in relation to his trading in Genesis Minerals Limited shares in September 2021.

Mr Waugh pleaded guilty to acquiring 747,626 shares in Genesis between 14–21 September 2021 when he became aware of a funding proposal that included a multi-million-dollar Genesis share placement and a restructure of the Genesis board that would see experienced mining executives, Raleigh Finlayson and Neville Power, join the board.

Mr Waugh came into possession of the information through his role at Omnia Company Pty Ltd, where he received email correspondence of the proposal and a draft ASX announcement for Genesis outlining the funding package and Mr Finlayson and Mr Power’s invitations to join the Genesis Board.

On 22 September 2021, this information became public when Genesis released an ASX announcement titled ‘Raleigh Finlayson to Cornerstone Strategic Funding Package’, which subsequently saw the Genesis share price rise 187%.

Between 1 and 19 November 2021 Mr Waugh sold the 747,626 Genesis shares, realising a profit of $57,256.44.

As a result of his conviction, Mr Waugh is automatically disqualified from managing corporations for five years.

• Read the media release 

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Company founder sentenced to 18 months’ imprisonment for misleading share trading

The founder of bottled water producer Eneco Refresh Ltd (Eneco), Henry Eng Chye Heng, has been sentenced to 18 months' imprisonment for market manipulation and creating a false or misleading appearance of active trading in Eneco shares.

The Perth District Court ordered Mr Heng be immediately released on the condition of good behaviour for 12 months.

Mr Heng was sentenced for using share trading accounts held in the names of his family to manipulate the share price of Eneco on 24 occasions between 18 December 2020 and 15 December 2021.

He also used share trading accounts held in the names of his family to conduct trades that created a false or misleading appearance of active trading in Eneco on 30 April 2021 and 30 November 2021.

Mr Heng, who was the managing director and executive chairman of the Perth-based company, pleaded guilty to the charges at a hearing on 1 December 2023 in the Perth Magistrates Court.

This matter was prosecuted by the Commonwealth Director of Public Prosecutions following a referral from ASIC.

• Read the media release

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Adam Blumenthal penalised and disqualified for market rigging and directors’ duties breaches

The Federal Court has ordered Adam Blumenthal, former director of EverBlu Capital Pty Ltd (EverBlu) and Creso Pharma Limited (now known as Melodiol Global Health Limited) (Creso), to pay a penalty of $850,000 and be disqualified from managing corporations for five years following action brought by ASIC.

The Court found Mr 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
• 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
• breached his duties as a director of Creso in relation to the engagement of Mr Tyson Scholz (a client of EverBlu) 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 Mr 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
• 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 Mr Scholz where Mr Blumenthal’s private company, Anglo Menda Pty Ltd, had lent more than $7 million to Mr Scholz to fund his trading in Creso shares.

The Court has also ordered Mr Blumenthal to pay $100,000 towards ASIC’s costs of the proceeding.

Mr Blumenthal admitted to contraventions of sections 1041B(1)(b), 180(1) and 181(1)(a) of the Corporations Act 2001 and agreed to the relief the parties proposed to the Court.

• Read the media release

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Federal Court winds up retail OTC derivatives issuer Prospero Markets

The Federal Court has ordered that Prospero Markets Pty Ltd (Prospero) be wound up on just and equitable grounds and that liquidators be appointed following our application.

We applied for these orders because we held a broad range of concerns about the management of Prospero’s business, including in relation to compliance with its Australian financial services (AFS) licence conditions and obligations as an OTC derivatives issuer under the Corporations Act 2001.

We commenced our investigation into Prospero following the Australian Federal Police’s Operation Avarus-Nightwolf which resulted in former officers and responsible managers of Prospero being charged with money-laundering offences in October 2023 relating to the Changjiang Currency Exchange money remitting chain.

We received inquiries from clients who are concerned about the return of their funds. In bringing the application, we considered that the appointment of liquidators was the best way to ensure the efficient return of client funds.

In making his decision to wind up the company, Registrar Luxton stressed the importance for licensees to comply with the statutory obligations of an AFS licence, such as the need to:

• appoint and maintain an auditor
• lodge audited financial accounts with ASIC
• lodge monthly derivative client money reconciliations with ASIC
• lodge annual derivative client money declarations with ASIC
• provide derivative transaction reporting data to ASIC.

The appointed liquidators are Andrew Cummins, Jonathon Keenan, and Peter Krejci of BRI Ferrier.

Clients or creditors of Prospero can contact the liquidators using the following details:

• Email: prosperomarkets@brifnsw.com.au
• Phone: 1300 291 012 (toll free) or +61 2 8044 0530 (international).

• Read the media release

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JB Markets AFS licence cancelled

We’ve cancelled the Australian financial services (AFS) licence of JB Markets Pty Ltd (JB Markets), effective from 12 April 2024, for failing to:

• comply with the financial requirements of its AFS licence and
• have adequate resources to provide the financial services covered by the licence and to carry out supervisory arrangements.

Under the Corporations Act 2001, we may suspend or cancel an AFS licence if a licensee fails to meet its general obligations under section 912A, including financial requirements and adequate resourcing.

The financial requirements provide important consumer protections in seeking to reduce the risk of a disorderly wind-up, in the event the business fails. We consider that cancelling JB Markets AFS licence will protect the interests of potential consumers, promote confidence in the financial services industry, and encourage professionalism by those who provide financial services.

The cancellation follows the suspension of JB Markets’ AFS licence on 8 November 2023 until 30 April 2024.

JB Markets may apply to the Administrative Appeals Tribunal for a review of ASIC’s decision.

• Read the media release

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Cracking down on breaches of regulatory data obligations

Inaccurate or incomplete regulatory data attached to orders and trades entered by market participants impact our ability to effectively conduct market surveillance and uphold market integrity. Where that same data feed is used by the market participant to conduct its own pre and post-trade surveillance, the effectiveness of those tools will similarly be impacted.

We were concerned to find in a recent review that several market participants were supplying inaccurate or incomplete regulatory data to ASIC, including origin of order and capacity of participant as principal, agent or both in relation to orders and trades. In some cases, our review found that the participants’ regulatory data issues resulted from technology changes to systems, or updates to processes, and went unnoticed for lengthy periods of time. These incidents highlight the importance of having adequate organisational and technical resources when undertaking changes to systems and processes. Our enquiries are ongoing.

We strongly encourage market participants to review the regulatory data they provide and ensure it is accurate and complete.

Once identified, regulatory data issues should be promptly reported to ASIC. We expect market participants to investigate and remediate regulatory data issues that are identified in a timely manner and consider how the issues affected the effectiveness of the participant’s trade monitoring and surveillance arrangements used to detect market misconduct. Measures to prevent similar incidents in the future should be implemented as soon as possible.

We’ll continue to undertake targeted reviews market participants’ compliance with their regulatory data obligations in Part 7.4 of the ASIC Market Integrity Rules (Securities Markets) 2017 and take action, where appropriate.

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Multifactor authentication: A proven strategy to reduce account compromise

We encourage market intermediaries to consider implementing multi-factor authentication (MFA) within their firms to reduce the incidence of account compromise and mitigate the risk of cyber breaches.

MFA is an authentication measure that requires two or more proofs of identity to grant a user access to an account, device or application.

A study on the implementation of MFA in 2023 found a 99.22% reduction in account compromise. Our own participation in cyber incident response and the Council of Financial Regulator’s CORIE program have revealed that most recent high-profile incidents in Australia could have been prevented if MFA had been in place for third-party suppliers.

Firms operating without the protection of MFA have difficulty accurately assessing the extent of account compromise. When accounts are compromised, users may change their passwords without alerting administrators, leading to a lack of visibility.

Users often fall into the habit of reusing personal passwords for business accounts. Unfortunately, these personal accounts are frequently breached without clear organisational or user visibility. Passwords and personal emails are combined with data from other data breaches to construct a user profile, which is used in subsequent attacks to compromise organisational accounts.

Visit the Australian Signals Directorate Cyber Security Centre for information on simple and cost effective measures to keep yourself secure online, protect yourself when using MFA, and turning on MFA.

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