Fund Operator, Firm Accountant Charged with Insider Trading
Insider trading has long been a staple of the Commission’s enforcement program. In many instances insiders furnish material non-public information to family and friends as a gift. In others the insider transmits the information in return for a split of the trading profits. In the Commission’s most recent case, an insider repeatedly passed material non-public information to a friend who made over $6.2 million in illegal profits. In return f he provided dinners and an occasional trip to his insider. SEC v. Blakstad (S.D.N.Y. Filed July 10, 2019).
Donald Blakstad is the operator of an investment firm. Martha Bustos was an accountant in the finance department of Illumina, Inc. during the initial part of the scheme. Later she served as a consultant to the firm which manufactured human genome biomedical tools and drugs.
Over a two-year period, beginning in April 2016, Ms. Bustos repeatedly furnished material non-public information to her friend, Donald Blakstad. Through her position in the finance department, and later as a consultant, Ms. Bustos had a stream of material non-public financial information regarding the firm’s performance and earnings. She was in a position to fuel Mr. Blakstad’s trading.
Illumina had an insider trading policy. That policy prohibited the transmission of material non-public information. Nevertheless, in four instances over two years she furnished inside information to Mr. Blakstad. Prior to the firm’s preliminary revenue announcement on April 18, 2016, for example, Ms. Bustos provided her friend with information regarding Illumina’s financial performance for the first quarter of 2016. Before the public disclosure of that information Mr. Blakstad passed it to two surrogates. Each traded options. Following the firm’s announcement of the quarterly results, the option positions were liquidated at a profit.
This pattern was replicated three more times. In advance of Illumina’s October 10, 2016 preliminary revenue announcement Ms. Bustos informed her friend about the company financial results. When the Illumina release was issued it disclosed that the firm failed to meet revenue expectations for the period. The share price dropped significantly. Mr. Blakstad, who again recruited surrogates to place the trades, reaped substantial profits.
Prior to firm’s August 1, 2017 and July 30, 2018 earnings announcements the pattern repeated. In each instance Ms. Bustos furnished material, non-public financial data taken from Illumina in violation of its policies to her friend. In each instance Mr. Blakstad had others trade on his behalf. In each instance the trades were profitable.
While Mr. Blakstad was able to obtain millions of dollars in illegal trading profits, the payments for the information were minimal. Typically, Mr. Bustos entertained his friend. At times the gifts were what the complaint called “lavish,” such as a trip to New York that included first class air fare, hotel and dinner at a very expensive restaurant. The “lavish” did not begin to approach the millions of dollars the professional trader made from the arrangement. The complaint alleges violations of Exchange Act Section 10(b). The case is pending.
Neither the minimal gains of Ms. Bustos, nor the efforts at concealment by Mr. Blakstad, appear to have impacted the Manhattan U.S. Attorney’s Office. Ms. Bustos pleaded guilty. Mr. Blakstad has been named in a five-count indictment that incudes one count of conspiracy to commit securities fraud, two counts of securities fraud, a count of conspiracy to commit wire fraud and a count of wire fraud. He was arrested in San Diego. Ms. Bustos continues to cooperate with the USAO. U.S. v Blakstad (S.D.N.Y.). The case is pending.