Litigation Release No. 23680 / November 1, 2016

Securities and Exchange Commission v. Ryan Gilbertson, et al., Civil Action No. 0:16-cv-3779-DFW/HB (D. Minnesota) (filed October 31, 2016)

in the Matter of Nicholas Shermeta and Napa Properties, LLC, Administrative Proceeding File No. 3-17652

On October 31, 2016, the Securities and Exchange Commission 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.

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 as well as a cease-and-desist order as to Sections 17(a)(2) and 17(a)(3) of the Securities Act and Sections 13(d) and 16(a) of the Exchange Act.

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 and to a cease-and-desist order as to Section 15(a) of the Exchange Act. Shermeta also agreed to be barred from the securities industry with a right to apply for reinstatement after three years.

The complaint filed in the United States District Court for the District of Minnesota seeks monetary sanctions including disgorgement and financial penalties as well as injunctive relief as to all the defendants and a bar from serving as an officer and director as to Ryan Gilbertson. The complaint alleges that Gilbertson violated Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange and Rules 10b-5(a) and (c) thereunder, and Sections 13(d) and 16(a) of the Exchange Act; that Howells and Hoskins aided and abetted Gilbertson's violations of Sections 17(a)(1) and 17(a)(3) of the Securities Act, Section 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder; and that Gilbertson, Howells, and Hoskins violated Sections 5(a) and 5(c) of the Securities Act.

The SEC's investigation in this matter is continuing.