U.S. Attorney: Owner Of Investment Fund Sentenced To 3 Years In Prison For Fraud

In June 2021, a jury found BLAKSTAD guilty of conspiracy, securities fraud, and wire fraud offenses following a two-week jury trial before U.S. District Judge Edgardo Ramos, who imposed today's sentence.

According to the Indictment, evidence presented at trial, and statements made in connection with sentencing:

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.

In total, BLAKSTAD's schemes yielded more than $7 million in criminal profits.

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In addition to his prison term, BLAKSTAD, 62, of San Diego, California, was sentenced to three years of supervised release and ordered to pay restitution to victims in the amount of $669,000.

Mr. Williams praised the investigative work of the Federal Bureau of Investigation and thanked the Securities and Exchange Commission, which brought a separate civil action.

This case is being handled by the Office's Securities and Commodities Fraud Unit. Assistant U.S. Attorneys Edward A. Imperatore and Jared Lenow are in charge of the prosecution.