United States Attorney Erica H. MacDonald today announced the sentencing of RYAN RANDALL GILBERTSON, 42, founder of Dakota Plains Holdings, Inc., to 144 months in federal prison, a $2 million fine, and over $15 million in restitution. GILBERTSON was sentenced today by Judge Patrick J. Schiltz in U.S. District Court in Minneapolis, Minnesota. A federal jury convicted GILBERTSON and co-defendant DOUGLAS VAUGHN HOSKINS, 50, of multiple counts of wire fraud, securities fraud, and conspiracy to commit securities fraud, on June 26, 2018, following an 11-day jury trial before Judge Schiltz.
HOSKINS is scheduled to be sentenced on December 21, 2018, by Judge Patrick J. Schiltz in U.S. District Court in Minneapolis, Minnesota.
As proven in court, in November 2008, GILBERTSON and his business partner founded Dakota Plains, Inc. (“Dakota Plains”), a privately held company based in Wayzata, Minnesota that owned and operated a transloading facility in New Town, North Dakota. From the outset, GILBERTSON and his partner concealed their involvement in the company by installing their fathers as the company’s executives and two-person board of directors. Rather than capitalize the company at the outset, GILBERTSON caused the company to issue $9 million in promissory notes to himself and other corporate insiders. The notes paid 12% annual interest and included a provision that paid GILBERTSON and the other noteholders a bonus payment based on the average trading price of Dakota Plains stock during the first 20 days of public trading. The bonus payment provision operated as an “embedded derivative” in which the value of the bonus payment would be based on the average price of Dakota Plains stock during the first 20 days of public trading.
GILBERTSON then caused the company to go public via a reverse merger with a company called Malibu Club Tan, which was a publicly traded shell company that operated a single defunct tanning salon in suburban Salt Lake City, Utah. GILBERTSON made it a secret condition of the reverse merger that DOUG HOSKINS, his friend and polo coach, be able to purchase the majority of the “float” of freely trading shares, which were the only shares that could trade publicly following the reverse merger. GILBERTSON then gave $30,000 to HOSKINS, who was deeply in debt and owed money to the IRS and other creditors, in order to purchase 50,000 shares of Dakota Plains stock at a price of $0.50 per share on March 23, 2012, the morning of the reverse merger. That same day, again at the direction of GILBERTSON, HOSKINS began selling his shares at the fraudulently inflated price of $12 per share.
On the first day of public trading, HOSKINS began selling his newly acquired shares for an inflated price of $12 per share at GILBERTSON’S direction, and continued to do so throughout the first 20 days of public trading following the reverse merger. At the same time, GILBERTSON directed a local stockbroker at a Minneapolis-based securities brokerage firm to purchase shares of Dakota Plains stock on behalf of both himself and his clients at inflated prices. GILBERTSON also instructed a Salt Lake City-based business consultant to manipulate the price of the stock by ensuring that none of the shell company shareholders sold their stock for less than the $12 per share price offered by his friend and polo coach, HOSKINS. Indeed, on April 4, 2012, GILBERTSON sent a text message to the consultant in Utah bragging that the shell company shareholders “would be participating on sales at 7 bucks [a share] not 12 were it not for my involvement.”
Throughout the 20-day period following the reverse merger, GILBERTSON, with the help of HOSKINS and others, manipulated the price of Dakota Plains stock to increase the average trading price to $11.30 per share. This inflated share price triggered a $32.8 million bonus payment to GILBERTSON and the other noteholders. When the cash-strapped company was unable to pay the bonus, GILBERTSON instructed its CEO to raise money for use in paying GILBERTSON’s fraudulently inflated bonus payment.
Ultimately, GILBERTSON made millions as a result of his stock manipulation scheme. HOSKINS made less money, but still pocketed more than $125,000 from his stock sales, much of which he used to purchase an Argentine polo pony.
In the wake of the fraud scheme, HOSKINS was interviewed by the Securities and Exchange Commission (SEC) about his involvement in these stock sales. HOSKINS repeatedly lied under oath during the deposition, covering up both his and GILBERTSON’S involvement in the stock manipulation scheme. Among other things, HOSKINS claimed that he did not discuss the stock trades with any other individuals. At trial, GILBERTSON falsely denied his role in the stock manipulation scheme, but conceded that he had arranged for HOSKINS to purchase Dakota Plains stock prior to the reverse merger and had provided HOSKINS with the money with which he purchased the stock.
“Mr. Gilbertson orchestrated an extraordinarily complex stock manipulation scheme in order to obtain millions of dollars from a publicly traded company. He executed his scheme over many years at the detriment of the company, which is now bankrupt, its shareholders and the trading public,” said United States Attorney Erica H. MacDonald. “He did not care about how his actions may impact others; he only cared about lining his own pockets. Despite the complexity of his scheme, and how much of a game he tried to play, he lost, thanks to the diligent and thorough work of investigators, prosecutors, a federal jury, and the Court.”
“Mr. Gilbertson created a complex and complicated scheme that was unraveled thanks to the diligence of highly trained agents who don’t give up,” said Jill Sanborn, Special Agent in Charge of the Minneapolis Division of the FBI. “The heavy sentence imposed today on Mr. Gilbertson underscores that market rigging and self-dealing for one’s own financial gain are nefarious activities that will be discovered and that those who engage in them will be dealt with accordingly.”
“Today’s sentence sends a clear message regarding the critical role the U.S. Postal Inspection Service and its law enforcement partners play in protecting the investing public from these types of fraudulent schemes, “ said Acting Postal Inspector in Charge Lesley Allison. “We will continue to protect and ensure the nation’s mail stream is not used by criminals to prey upon our citizens.”
This case is the result of an investigation conducted by the FBI and the United States Postal Inspection Service.
This case was prosecuted by Assistant United States Attorneys Joseph H. Thompson, Kimberly A. Svendsen, and Melinda A. Williams.
The Criminal Docket Number for this case is: 17-cr-00066
RYAN RANDALL GILBERTSON, 42