Federal securities regulators have dropped the hammer on two Minnesota oil industry investors in connection with an alleged stock scheme involving Dakota Plains Holdings.
One founder of Dakota Plains, Ryan Gilbertson, has been accused of multiple violations of federal securities laws in connection with the company's initial public offering in 2012. The other founder, Michael Reger, has settled separate claims against him and agreed to pay nearly $8 million.
In a civil law enforcement action filed Monday in U.S. District Court in Minneapolis, the U.S. Securities and Exchange Commission alleges Gilbertson concealed his control of Dakota Plains and manipulated the company's stock when it went public, making "millions in profits."
Also on Monday, the SEC announced that Reger agreed to settle separate allegations against him that included receiving illicit payments. In August, Reger was fired from his job as CEO of Wayzata-based Northern Oil and Gas after he told the company that federal securities regulators were seeking an enforcement action against him.
Gilbertson, a former president of the publicly traded Northern Oil, and Reger in 2008 co-founded Dakota Plains, which is involved in transporting oil and frac sand for North Dakota's petroleum industry.
Gilbertson and Reger, both 40, installed their fathers as "figurehead executives" to run Dakota Plains, "so they could secretly wield control of the company and issue millions of shares of stock to themselves, family and friends," according to the SEC.
The two men caused Dakota to borrow $9 million from them on "generous terms," which included extra bonus payments to Gilbertson, Reger and others based on the price of Dakota Plains stock during its first 20 days of trading. Dakota's stock popped up to $12 in the first few weeks of trading, but then faded. Shares are worth about a penny today.
Gilbertson, a resident of Delano, Minn., and Sarasota, Fla., enriched himself by more than $16 million through his control of Dakota Plains, the SEC alleges.