Published on Oct 31st, 2016 | Posted in Articles

The Securities and Exchange Commission today charged the co-founder of a Minnesota-based energy company with manipulating its stock price and concealing his control of the company to attain lucrative financial payouts. 

The company’s other co-founder agreed to pay nearly $8 million to settle separate charges against him.  Three others also are charged in the case.

The SEC filed a complaint against Ryan Gilbertson, who allegedly hatched and orchestrated the elaborate scheme to secretly siphon millions of dollars from Dakota Plains Holdings, which operates an oil-shipping rail facility in North Dakota.  Gilbertson founded the company with Michael Reger. 

According to the SEC’s complaint, Gilbertson and Reger installed their fathers as figurehead executives so they could secretly wield control of the company and issue millions of shares of stock to themselves, family, and friends.  They later hired one of their friends as CEO.  They allegedly caused the company to enter into an agreement to borrow money from them under generous terms that included extra bonus payments to Gilbertson, Reger, and other lenders based on the price of Dakota Plains stock after 20 days of trading following a reverse merger into a company with publicly-traded shares. 

According to the SEC’s complaint, Gilbertson enlisted friends and associates including Douglas Hoskins and Thomas Howells to choreograph extensive sales and purchases of Dakota Plains stock and cause the price to skyrocket from 30 cents to more than $11 per share during that 20-day period.  The inflated stock price obligated Dakota Plains to make bonus payments totaling $32 million to Gilbertson, Reger, and others.  After meeting his target to receive the bonus payments, Gilbertson ceased his alleged manipulation efforts.  The stock price then steadily declined to pennies per share and was delisted a few months ago.

Hoskins and Howells are charged in the SEC’s complaint along with Gilbertson for allegedly participating in his stock manipulation activities.

“As alleged in our complaint, Gilbertson enriched himself by more than $16 million through his secret control of the company while he and his associates defrauded shareholders and manipulated the stock price,” said David Glockner, Director of the SEC’s Chicago Regional Office.  “Corporate insiders must fully disclose their stock ownership and trading activities and cannot abuse their power in order to secretly reward themselves.”

Reger consented to an SEC order finding that he obtained illicit payments and skirted public disclosure requirements by spreading his Dakota Plains stock holdings among 10 accounts in different names to conceal that he owned more than one-fifth of the company’s shares and reaped millions of dollars in bonus payments.  Without admitting or denying the findings, Reger agreed to pay $6.5 million in disgorgement, $669,365.85 in interest, and a $750,000 penalty.

Minnesota-based stockbroker Nicholas Shermeta also consented to an SEC order finding that he solicited investors for Dakota Plains and recommended the stock to his clients at the registered brokerage firm where he worked, but improperly brokered the sales through his unregistered firm Napa Properties rather than through his employer.  Without admitting or denying the findings, Shermeta and Napa Properties agreed to pay $75,000 in disgorgement, $11,075.49 in interest, and a $50,000 penalty.  Shermeta also agreed to be barred from the securities industry with a right to apply for reinstatement after three years.

The SEC’s complaint against Gilbertson, Hoskins, and Howells seeks monetary sanctions and injunctive relief as well as an officer-and-director bar against Gilbertson.

The SEC’s investigation, which is continuing, is being conducted by Chris White, Craig McShane, and C.J. Kerstetter of the Chicago office.  The litigation will be led by Ben Hanauer and Jonathan Polish, and the case is being supervised by Robert Burson.