A man in the US is being sued by the Securities and Exchange Commission (SEC) for allegedly running a fraudulent cryptocurrency mining operation.
According to a complaint dated January 8, Donald G. Blakstad swindled more than $3.5 million from investors using three separate companies.
The businesses included a vehicle parts holding firm, an oil and gas firm, and “Energy Sources International” (ESI), a purported cryptocurrency mining operation where Blakstad was the only employee.
“This matter involves an offering fraud orchestrated by Blakstad in which he raised approximately $3.544 million from at least 14 investors through the fraudulent offer and sale of securities in three companies he owned and controlled,” the complaint reads.
“Instead of investing as promised, Blakstad used the majority of investor proceeds for his personal benefit, including spending funds on personal entertainment, the purchase of a stake in a nightclub, the purchase of a luxury automobile, and to fund illicit securities trading,” it adds.
Through his purported cryptocurrency mining company, Blakstad allegedly stole $550,000 from five individuals. He told them their money would be used to cover equipment costs.
However, the SEC says Blakstad spent almost half of the capital at restaurants, hotels, and casinos.
Blakstad was charged in a separate $6.2 million insider trading scheme in the summer.
Not the first time
This is obviously not the first time purported cryptocurrency mining operations have been used to ruse investors.
As previously reported by Hard Fork, Bitqyck, another fake cryptocurrency mining business managed to sell $13 million worth of tokens to more than 13,000 investors.
The company was supposed to generate cryptocurrency using electricity it had secured at below-market rates. But, the SEC found that the deal didn’t exist.
What’s more, the entire mining operation didn’t actually exist, and the company that sold the tokens was deemed an unregistered securities exchange.
The founders agreed to return $13 million raised to 13,000 investors, with interest and were fined a collective $10 million in civil penalties.