The US Securities and Exchange Commission (SEC) has charged a San Diego investment fund owner with running a fraudulent crypto mining scheme that allegedly defrauded investors out of $3.5 million. Donald Blakstad, 60, is also charged with offering and selling unregistered securities.
On top of these charges, prosecutors accused the man of deploying elaborate tactics to lure at least 14 victims with promises of large returns on their investments in an oil and alternative energy resources company, as well as his Bitcoin mining pool.
Documents shared today allege that from July 2015 through May 2019, the defendant operated ESI, a fraudulent scheme that enticed users to invest in exchange for shares of purported cryptocurrency mining pools. Blakstad was also the owner and principal of Midcontinental Petroleum Inc., which invests in the oil and gas industry, and Xact Holdings, a company formed to acquire a Canadian manufacturer of industrial vehicle components.
While he rewarded investors for recruiting new participants, the SEC describes these entities as fledgling companies with little to no actual business operations and few prospects for profitable operations.
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investors paid for miners that never existed
The SEC further explains that Blakstad sent an email to investors alleging that ESI “developed a world-class data center for crypto currency mining.” He used the lure of quick riches from virtual currency to defraud investors, alleging that the mining operation “offers a unique opportunity for people looking to make large investments in the crypto currency mining space.”
Blakstad also carried out the fraud by selling investment contracts that represented shares in the companies he established to mine for cryptocurrency. He further stated that “we offer investors the ability to purchase the mining equipment and lease back to ESI. Or to make an equity investment in the Company,” the SEC said in the complaint.
As a result, many investors paid for computing power that never existed. Instead, Blakstad spent his pool’s monies to pay for his personal expenses, including cash withdrawals, hotel, casino and restaurant expenses, and payments for other personal items.
Now, the agency wants penalties, disgorgement of ill-gotten gains, and permanent injunctions, although there is no guarantee for paying back victims.
If convicted with wire fraud, Blakstad could face up to 20 years in prison and a fine of $1 million while selling unregistered securities carries a maximum of five years in prison and a $250,000 fiscal penalty.