The complaint for this class action alleges that Ryan R. Gilbertson and Michael L. Reger founded Dakota Plains Holdings in order to run a stock manipulation scheme. The two made all important decisions concerning the company, the complaint said, yet hid the extent of their ownership as well as their roles and their stock manipulation. The extensive deceits were violations of the Securities Exchange Act of 1934, the complaint claims.
The class for this action is all persons and entities who acquired Dakota Plains securities between March 23, 2012 and August 16, 2016 and who were damaged thereby.
Dakota Plains is not named as a defendant in this case because it is in bankruptcy. However, its supposed purpose was “transloading” or loading crude oil onto railway cars in New Town, North Dakota.
In 2011, the company issued $3.5 million worth of promissory notes, but instead of using the proceeds to build its transloading facility, the complaint charges, it paid a shareholder dividend. It then issued more notes. Many were held by Gilbertson and Reger, the complaint claims.
Gilbertson and Reger owned significant percentages of the company’s stock, but hid it by dividing it between accounts. On March 23, 2012, the first day of the class period, the company merged with a shell company. As soon as its stock began trading, the complaint says, the two ran a scheme to inflate the stock price, raising it from 30 cents to between $11 and $12.
This in turn set off an “additional payment” provision relating to the promissory notes, again profiting them. Since the company did not have the cash to pay, the two took new promissory notes at a high rate of interest. Eventually, some insiders threatened legal action if the additional payment were not renegotiated. Only after the additional payment was reduced by 42% was its existence disclosed to shareholders, but many of the details were omitted.
In early 2013, outside counsel hired to look into the stock manipulation reported that it had been done by an insider, the complaint says, and the company decided it was Gilbertson, but this was not publicly disclosed. The company confronted Gilbertson, and he and Reger agreed to restructure the additional payment again in December of 2013.
According to the complaint, Gilbertson still made millions in stock concessions, which he then sold, and the stock price, free of manipulation, began to decline. The complaint alleges that Gilbertson and Reger also had the company pay a shell company they owned hundreds of thousands of dollars for nonexistent “consulting services.”
By mid-2015, the stock was trading for less than a dollar. In December, the Securities and Exchange Commission (SEC) filed to compel the company to produce documents and answer subpoenas. By April 2015, it was reported that Reger was under investigation for stock manipulation elsewhere. In July 2016 the stock was delisted from the New York Stock Exchange.