The SEC recently revealed that it had charged a San Diego man with running a fraudulent crypto mining operation. According to the SEC, Donald Blakstad, based in San Diego, used the scheme to siphon around $3.5 million from unwitting investors.
The Allegations
According to an official SEC document, Blakstad is accused of orchestrating a scheme in which he raised around $3.5 million from at least 14 investors. In the scheme, the accused promised the investors that he could sell them securities in three companies he owned.
However, Blakstad did not invest the money as he had promised the investors. He used most of the funds he received from investors for his personal needs. This included spending the money of personal entertainment, buying a stake in a nightclub, buying luxury vehicles, and funding illegal securities trading.
The SEC alleges that Blasktad raised the funds between July 2015 and May 2019. One of the firms was Midcontinental, which was allegedly a company in the oil, gas, and alternative energy sector. The other one was ESI, which he alleged operated crypto mining operations. Blakstad also alleged the funds he collected from investors would go to Xact Holdings, which was allegedly a firm created to buy a Canadian manufacturer of automobile components.
The Fake Crypto Mining Operation
The SEC claims that the accused convinced investors to buy securities in the three firms by making false statements and omissions regarding how he would use the funds. In the case of ESI, Blakstad promised investors that the funds would be used to buy equipment and cover the costs for a crypto mining operation. It is also alleged that Blasktad paid off some of the money to someone who was used to introduce some of the investors to Blakstad.
According to the SEC, the ESI scam was active from December 2017 up to May 2018. During that period, he sold securities in ESI to about five investors for about $550,000. Blakstad sent an email to potential investors promising them that he had created a data center for crypto mining. In the emails, Blakstad said that the mining operation has the potential to make investors a lot of money. The alleged business model included the ability for people to buy mining equipment and lease it back to ESI. Alternatively, the investors could make an equity investment in ESI. Once investors sent him the funds, he deposited the money in an ESI bank account, which he controlled.
The SEC claims that Blakstad used at least $270,000 of the ESI funds for personal needs including casino visits, restaurant expenses, and payments for personal items. It is also alleged that Blakstad paid about $60,000 back to investors although the operation was not profitable. This was in an attempt to cover his fraudulent activities. He had previously been arrested and charged in July 2019 for running an insider-trading ring.
Summary
This latest arrest is proof that SEC is unrelenting in the pursuit of scammers who invaded the crypto market during the 2017 crypto bull run. More scams will likely be uncovered in the future. Before investing in any crypto project, it is important to conduct due diligence.
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