On April 18, 2023, the Securities and Exchange Commission announced that a final judgment was entered by a judge in the US District Court for the Southern District of New York against Donald Blakstad, the owner of a California-based investment firm, for his role in a $6.2 million insider trading scheme involving his close friends Martha Patricia Bustos and Ronald Maron and unlawful trades involving securities of Illumina, Inc. a California-based biotech company. The SEC reports that the final judgment, which was entered on April 11, 2023, reflects a settlement reached between Blakstad and the SEC several months after final judgments were entered for Bustos and Maron in November 2022.
According to the SEC’s amended complaint, which was filed in August 2021, Bustos, a former accountant with Illumina, shared material, nonpublic information (“MPNI”) with Blakstad regarding at least four of Illumina’s quarterly performance announcements. Based on these tips, Blakstad allegedly had two individuals place trades on his behalf and then shared the MNPI with his friend Maron and at least three other individuals, all of whom placed trades based on the tip. The SEC amended the complaint to include Maron’s friend Joubin Torkan as a relief defendant whose account was used by Maron to unlawfully purchase Illumina securities, allegedly generating $900,000 in illicit profits for Maron and just over $113,000 for Torkan. In 2021, Torkan settled with the SEC agreeing to disgorge approximately $113,000 plus prejudgment interest.
According to the final judgment, Blakstad consented to the entry of a judgment that permanently enjoined him from violating Section 10(b) of the Exchange Act of Rule 10-b5 thereunder. Blakstad was also ordered to disgorge more than $3.6 million plus just over $188,000 in prejudgment interest. In final judgments entered by the court in 2022, Maron was ordered to pay a civil penalty of $1.8 million, while Bustos was ordered to disgorge $12,000, which represents alleged profits earned from her role in the scheme. However, the SEC reports that the monetary judgments entered in the SEC action for Blakstad and Bustos were deemed satisfied by orders of forfeiture made in their related criminal matters, which were decided and resolved in 2021.
In 2019, when initial charges were filed by the SEC, the US Attorney’s Office for the Southern District of New York also filed criminal charges against Blakstad and Bustos for their roles in the insider trading scheme. In 2019, Bustos began cooperating with federal prosecutors and pleaded guilty to criminal charges, including securities fraud, securities fraud conspiracy and wire fraud conspiracy. Bustos was ultimately sentenced to time served and received 250 hours of community service and two years of supervised release. Bustos was also ordered in the criminal matter to forfeit $12,000 and pay a criminal fine of $20,000. Blakstad proceeded to trial and, in June 2021, was convicted by a federal jury of conspiracy, securities fraud, wire fraud, and aiding and abetting. In November 2021, he was sentenced to 36 months in prison; three years of supervised release; and ordered to pay $669,000 in restitution. The SEC also reports that the court ordered the criminal forfeiture of over $4.5 million for Blakstad’s role in the scheme.
According to a SEC litigation release dated April 18, 2023, Blakstad also recently agreed to settle securities fraud charges that were part of a separate SEC action involving Energy Sources Internationals Corporation, a cryptocurrency mining operation allegedly controlled by Blakstad (Securities and Exchange Commission v. Blakstad, et al., Civil Action No. 1:20-cv-00163 (S.D.N.Y. filed January 8, 2020). The SEC further reports that, on April 17, 2023, in connection with the criminal conviction, the SEC suspended Bustos from appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission’s Rules of Practice.