Tuesday, June 29, 2021

Owner And Principal Of Investment Firm Found Guilty Of Insider Trading And Investment Fraud Scheme

 

 Audrey Strauss, the United States Attorney for the Southern District of New York, announced today that, following a two-week trial presided over by U.S. District Judge Edgardo Ramos, and approximately one hour of deliberations, DONALD BLAKSTAD, the owner and principal of a California-based investment firm, was found guilty on all counts for committing insider trading and a securities offering fraud scheme.  BLAKSTAD’s offenses yielded more than $7 million in criminal profits. 

U.S. Attorney Audrey Strauss said:  “As a unanimous jury found, Donald Blakstad used his connections to a company insider to gather inside information that he and his associates then traded on, raking in more than $6 million in illegal profits.  In addition, Blakstad defrauded investor clients out of more $1 million, funds he purported would be invested but he instead misappropriated, in some cases for personal expenses.  Now Donald Blakstad awaits sentencing for his crimes.”

According to the allegations contained in the Indictment and the evidence presented at trial:

BLAKSTAD was a stock trader and the owner and principal of an investment fund known as Midcontinental Petroleum Inc. (“Midcontinental Petroleum”), which purported to be in the business of soliciting investments in the energy industry.  Martha Bustos was a former certified public accountant who worked in the finance department at Illumina, Inc. (“Illumina”), a San Diego-based biotechnology company whose securities trade on NASDAQ.  By virtue of her employment at Illumina, Bustos had access to material nonpublic information about Illumina’s financial condition, including its earnings. 

On several occasions, from 2016 through 2018, BLAKSTAD obtained inside information about Illumina’s financial condition from Bustos before Illumina publicly announced its earnings and financial results.  As BLAKSTAD knew, Bustos owed a duty to keep inside information about Illumina confidential. 

BLAKSTAD, aware of Bustos’s breach of duty to Illumina, used this inside information to make profitable trades in Illumina securities shortly before Illumina’s earnings announcements.  At times, BLAKSTAD tipped his associates so that they could trade Illumina stock and options based on the inside information.  At other times, in order to avoid detection, BLAKSTAD arranged for his associates to purchase Illumina securities for BLAKSTAD’s benefit in accounts controlled by his associates. 

Following the public announcement of Illumina’s earnings, BLAKSTAD and his associates sold the Illumina securities at a significant profit, sometimes exceeding more than 2,000 percent.  In total, BLAKSTAD and his associates made more than $6 million in profits from purchasing and selling Illumina securities. 

In addition, from at least in or about 2015 through at least in or about 2019, BLAKSTAD devised and operated a securities offering fraud to fraudulently obtain more than a $1 million from a number of investors.  BLAKSTAD fraudulently induced victim investors to make up-front, lump-sum investments for securities issued by Midcontinental Petroleum, which funds BLAKSTAD then misappropriated, in substantial part. 

To facilitate the scheme, BLAKSTAD made false and misleading representations to investor victims regarding how their investment funds would be utilized.  During the scheme, at BLAKSTAD’s direction, victims transmitted their funds, including by wire transfer, into bank accounts that were controlled by BLAKSTAD.  Once he obtained these investor funds, BLAKSTAD did not use them for the purposes he had represented to investors.  Instead, BLAKSTAD diverted a substantial portion of victims’ funds to himself and to co-conspirators.  For example, BLAKSTAD used the funds to pay for a variety of personal expenses and for purposes that were unrelated to the business of Midcontinental Petroleum. 

BLAKSTAD also made a series of false and misleading statements to victims designed to avoid detection, perpetuate the scheme, and keep the victim funds he received as a result of the fraud.   

BLAKSTAD, 62, of San Diego, California, was convicted on all counts of the Indictment.  He was convicted of one count of conspiracy to commit securities fraud, two counts of securities fraud, one count of conspiracy to commit wire fraud, and one count of wire fraud for his participation in the insider trading scheme.  He was also convicted of one count of conspiracy to commit securities fraud and wire fraud and one count of wire fraud for his participation in the securities offering fraud scheme.  The securities fraud counts and the conspiracy to commit wire fraud count each carry a maximum sentence of 20 years in prison.  The conspiracy to commit securities fraud and the conspiracy to commit securities fraud and wire fraud counts each carry a maximum term of five years in prison.  The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant would be determined by the Court.

BLAKSTAD is scheduled to be sentenced before Judge Ramos, who presided over the trial, on October 28, 2021, at 11:00 a.m. 

Bustos pled guilty in June 2019 for her participation in the insider trading scheme.  Bustos, who is cooperating with the Government, has yet to be sentenced.

Ms. Strauss praised the outstanding investigative work of the Federal Bureau of Investigation.  Ms. Strauss also thanked the Securities and Exchange Commission, which brought a separate civil action. 

No comments:

Post a Comment