Technology vendor CellOS Software has won $42 million in damages from its former chief executive officer for secretly buying and selling his own shares in the company for a profit.
Jason Huber, who founded CellOS in 2005, was accused by the company’s board of defrauding it through two uncommercial loans he provided and share trading involving a network of offshore entities.
A Federal Court has now ordered Huber to repay $42 million -- the amount of profit lodged due to the share trading -- plus costs.
In addition, the judge also expunged the $15 million loan from CelllOS’ balance sheet, and has also allowed the vendor to cancel 13 million shares that were previously issued under a debt to equity conversion.
CellOS, which achieved Oracle Partner Network gold member status in 2017, supplies communications service providers with software solutions, including big data analytics, data monetisation and security intelligence.
While acting as CEO, Huber had the responsibility for raising funds to run CellOS’ business.
However, according to summation from Justice Jonathan Beach, instead of procuring potential investors to buy shares issued by CellOS, Huber diverted potential investors to buying shares from him through his own controlled entities.
Through the scheme, Huber "caused CellOS detriment by denying it the opportunity to raise funds by directly issuing shares to investors," Beach said in a ruling handed down on 17 April.
These shares had been purchased in a "grey market at a substantial discount to the price that CellOS could have issued them for," Beach added.
Alongside this, in order to fund CellOS, Huber used some of the profits from the share trading to loan funds to enter into uncommercial loan agreements with CellOS, without disclosing his interest in these lending entities.
As such, he was found to have breached his fiduciary and statutory duties owed to CellOS.
In his defence, Huber said he had not made any profit, but rather suffered significant losses from the scheme.
“But such a perspective is partly informed by what happened to the share price of CellOS well after the relevant events,” Beach said. “That hindsight analysis does not deny that at the time of the breaches of fiduciary duty, significant profits were made for which there should be an accounting.”