Accused Fraudster Tapped Firm Account for Strip Club Visit

A San Diego investor on trial for financial fraud told a jury he used a company account that mixed investors’ money with his own to pay for trips to a strip club and casinos, but denied doing anything illegal.

Donald Blakstad took the witness stand in a Manhattan court and said he used an account for his company -- Midcontinental Petroleum -- for personal and business expenses because there is a lien on his accounts for unpaid taxes. The personal expenses also included the purchase of a Bentley.

Blakstad said he put his own money into the account, which covered the personal expenses. “I wasn’t using investor money,” he said in response to cross-examination questions from Assistant U.S. Attorney Edward Imperatore on Thursday.

Prosecutors claim Blakstad defrauded investors by taking in about $1.5 million, and using some of the funds from that account for his own personal expenses. The defense says about half that amount was a personal loan. During the trial they have painted a picture of Blakstad as a big-spender who frequently hosted group dinners at ritzy San Diego steakhouses and seafood restaurants, picked up a tab for a group trip to New York and bought fancy cars.

Blakstad is also accused of using inside information from Illumina Inc. employee Martha Patricia Bustos to trade securities around earnings-related announcements. The government says he and his associates brought in about $6 million from the trades.

In a move that’s unusual in such trials, Blakstad testified in his own defense, denying the charges.

Bought Options

Blakstad said he didn’t use material non-public information, and that Bustos, whom he still considers a friend, never gave him specific earnings-related numbers such as revenue or earnings-per-share, which she has testified to doing.

Prosecutors are targeting Blakstad’s purchase of put options on Oct. 10, 2016, hours before Illumina made an earnings pre-announcement that sent the stock price down. Blakstad made more than $2.5 million profit on his trade.

Imperatore asked Blakstad whether he understood that to be a regularly scheduled earnings release or an unscheduled announcement.

“I don’t understand the difference, to be honest with you,” Blakstad responded.

Didn’t Pay Taxes

Blakstad defended his purchase of options, saying there were reports around August 2016 that Thermo Fisher Scientific Inc. might have been looking to buy Illumina for $30 billion, which had sent the San Diego-based biotechnology company’s stock up. Blakstad said he bought the options in October, expecting the share price to fall if an acquisition wasn’t announced.

“I felt strongly the stock would go back down,” he testified in response to questions from his lawyer, Eugene Iredale.

Although Blakstad made millions of dollars trading Illumina securities from 2015 to 2019, he didn’t file taxes those years, which he said was a mistake. “I should have filed a tax return,” Blakstad said, adding that he had millions of dollars of losses that would have carried forward and likely wouldn’t have owed any money.

Blakstad emphasized that he spent all of his investors’ money on appropriate projects and some of his own money.

“Did you in fact spend all of the investor money you received and more of your own money in projects of Midcontinental?” Iredale asked.

“I probably spent double what any investors put, or more,” Blakstad said.

The defense rested on Friday, and jurors are likely to begin deliberating Monday.

The case is U.S. v. Blakstad, 19-cr-00486, U.S. District Court, Southern District of New York (Manhattan).

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