SEC charges alleged fraudster behind $3.5M crypto scam

The U.S. Securities and Exchange Commission (SEC) has brought charges against a man alleged to have defrauded investors out of $3.5 million. The man is said to have lured investment into three of his companies, one of which was a purported crypto mining operation. However, he ended up using most of the money he raised to fund a lavish lifestyle and pay off some of his accomplices.

In the complaint filed early in the week, the SEC alleged that Donald Blakstad raised $3.544 million from at least 14 investors. Blakstad fraudulently sold securities in three companies he owned and controlled. However, instead of using the money for operations as he had promised, he channeled it towards his personal bank account.

One of the companies Blakstad allegedly sold securities in was Energy Sources International Corporation (ESI), a crypto mining company based in Las Vegas. He promised investors that the money would go towards purchasing the latest mining equipment and other startup costs.

The 60-year-old resident of San Diego, California, also sold shares in Midcontinental and Xact Holdings. The former was a purported oil, gas and alternative energy company, while the latter was a manufacturer of industrial vehicle components based in Canada.

The complaint, which was filed with the District Court for the Southern District Court of New York, revealed that ESI was incorporated in Nevada in 2015. The company was registered as a crypto mining data center, with Blakstad, its sole employee, listed as its president.

The defendant allegedly raised the funds between July 2015 and May 2019. With respect to ESI, he raised $550,000 from at least five individuals for shares in the company. He lied to investors that ESI had developed a “world-class data center for crypto currency mining.” The company would offer a unique opportunity for investors to get into the lucrative crypto business, he purportedly told the investors.

The SEC further alleges that Blakstad operated a Ponzi scheme with ESI, paying off some of the early investors with funds raised from late-stage investors. He issued nearly $60,000 to investors as returns on their investment.

The SEC wants the court to order Blakstad to disgorge the ill-gotten gains, together with prejudgment interest. It also wants him to pay a civil penalty and have him barred from acting as a director in any company that sells securities.