Federal Jury Convicts Former Oil Company President For Orchestrating $30 Million Stock Manipulation Scheme
United States Attorney Erica H. MacDonald announced the conviction of RYAN RANDALL GILBERTSON, 42, founder of Dakota Plains Holdings, Inc., and DOUGLAS VAUGHN HOSKINS, 50, for orchestrating a complex stock manipulation scheme that triggered more than $30 million dollars in fraudulent bonus payments. Following a 10-day trial before U.S. District Judge Patrick J. Schiltz in Minneapolis, Minnesota, the jury found the defendants guilty of multiple counts of wire fraud, conspiracy to commit securities fraud, and securities fraud.
“Ryan Gilbertson masterminded and carried out a complex scheme to manipulate the price of Dakota Plains stock. Although his scheme was complicated, Gilbertson's goal was simple—to line his own pockets at the expense of the company and its investors,” said U.S. Attorney Erica MacDonald. “Gilbertson, a former derivatives trader who co-founded a billion-dollar publicly-traded oil company, was a wealthy man. But like all too many white collar criminals, these defendants were motivated by nothing more than naked greed. The FBI, U.S. Postal Inspection Service, and IRS worked for years to understand, investigate, and prosecute Gilbertson's complex stock manipulation scheme. Thanks to their efforts, these defendants will not escape justice.”
“Postal Inspectors take very seriously their mission to deter the illegal use of the mails for any criminal activity,” said Postal Inspector in Charge, Craig Goldberg. “We are committed to working together with our law enforcement partners to identify, investigate and bring to justice those who would attempt to mask their criminal activity through the use of the mail. Today’s verdict reaffirms how critical a role the US Postal Inspection Service plays in protecting the American consumer from these types of fraudulent schemes.”
“A free market depends on honesty and integrity of those involved in publicly traded companies,” said Jill Sanborn, Special Agent in Charge of the Minneapolis Division of the FBI. “In this case, Gilbertson, the founder of Dakota Plains, along with his associate, conspired to manipulate the market for their own financial gain. We are grateful that the jury saw what we saw in this case – a scheme that looked complex, but was really about market rigging and self-dealing.”
According to the evidence presented at trial, 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 freely trading shares, 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 falsely inflated price of $12 per share.
According to the evidence presented at trial, 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 triggered a $32.8 million bonus payment to GILBERTSON and the other noteholders. 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 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.
This case is the result of an investigation conducted by the FBI, Criminal Investigation Division of the IRS, and the United States Postal Inspection Service.
This case is being prosecuted by Assistant United States Attorneys Joseph H. Thompson, Kimberly A. Svendsen, and Melinda A. Williams.
RYAN RANDALL GILBERTSON, 42
- Wire fraud, 14 counts
- Conspiracy to commit securities fraud, 1 count
- Securities fraud, 6 counts
DOUGLAS VAUGHN HOSKINS, 50
- Wire fraud, 2 counts
- Conspiracy to commit securities fraud, 1 count
- Securities fraud, 3 counts