The United States Attorney for the Southern District of New York announced today that Donald Blackstad, a stock trader and the owner and principal of an investment fund known as Midcontinental Petroleum, was sentenced to 36 months in prison for committing insider trading and orchestrating a securities offering fraud scheme.
Let’s recall that, in June 2021, a jury found Blackstad 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.
Midcontinental Petroleum Inc 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, 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, Blackstad obtained inside information about Illumina’s financial condition from Bustos before Illumina publicly announced its earnings and financial results. As Blackstad knew, Bustos owed a duty to keep inside information about Illumina confidential.
Blackstad used this inside information to make profitable trades in Illumina securities shortly before Illumina’s earnings announcements. At times, he 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, he arranged for his associates to purchase Illumina securities for his benefit in accounts controlled by his associates.
Following the public announcement of Illumina’s earnings, Blackstad and his associates sold the Illumina securities at a significant profit, sometimes exceeding more than 2,000 percent. In total, Blackstad 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, Blackstad devised and operated a securities offering fraud to fraudulently obtain more than a $1 million from a number of investors. He 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.
In total, Blackstad’s schemes yielded more than $7 million in criminal profits.
In addition to his prison term, Blackstad, 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.