Federal Jury Finds Three Defendants Guilty in $300 Million Nationwide Telemarketing Fraud Scheme Targeting the Elderly
Acting United States Attorney Gregory G. Brooker announced a 13 count indictment charging RYAN RANDALL GILBERTSON, 41, founder of Dakota Plains, Inc., DOUGLAS VAUGHN HOSKINS, 48, and NICHOLAS HARRIS SHERMETA, 49, with wire fraud stemming from a complex stock manipulation scheme that resulted in the company owing more than $30 million in fraudulent bonus payments. The defendants are expected to make their initial appearances in U.S. District Court in Minneapolis within the next week.
“This fraud scheme, like other financial crimes involving the mail, erodes public trust and threatens the integrity of the U.S. Mail," said Craig Goldberg, Inspector in Charge of the U.S. Postal Inspection Service, Denver Division, which includes Minnesota. "It is critical we make every effort to protect shareholders from being cheated. To help protect the public and ensure America's confidence in the U.S. Mail, Postal Inspectors are committed to working with our federal, state and local partners to aggressively investigate any fraud in which the mail is used.”
“IRS Criminal Investigation is committed to unraveling complex financial transactions where individuals, such as Ryan Randall Gilbertson, Douglas Vaughn Hoskins, and Nicholas Harris Shermeta operated a stock scheme to defraud investors,” stated Shea Jones, Special Agent in Charge of IRS-CI’s St. Paul Field Office. “Those individuals who engage in this type of stock manipulation fraud should know they will not go undetected and will be held accountable."
“As alleged, each of the defendants played a key role in this complex fraud scheme,” said Special Agent in Charge Richard T. Thornton of the Minneapolis Division of the FBI. “The FBI will continue to work closely with our law enforcement partners to ensure those who engage in this type of criminal behavior will be brought to justice.”
According to the indictment, in December 2008, GILBERTSON and his business partner (identified in the indictment as “Individual A”) founded Dakota Plains, Inc. (Dakota Plains), a privately held Minnesota corporation that owned and operated a transloading facility in New Town, North Dakota, for loading crude oil onto trains for transport to oil refineries.
According to the indictment, in January 2011, GILBERTSON and his partner caused Dakota Plains to issue a $1.9 million cash dividend to shareholders, from which GILBERTSON and his ex-wife received nearly $450,000 in dividend payments. That same month, GILBERTSON and his partner caused Dakota Plains to issue $3.5 million in promissory notes (the “Senior Notes”) from which GILBERTSON purchased a $1 million promissory note and another $100,000 promissory note in the name of Total Depth Foundation, GILBERTSON’S nonprofit corporation. In April 2011, GILBERTSON and his partner caused Dakota Plains to issue $5.5 million in promissory notes (the “Junior Notes”) in which GILBERTSON instructed the company to include an “additional payment” provision stating that the noteholders would receive bonus payments based on the price of Dakota Plains’ stock at the time of an initial public offering (“IPO”). From the Junior Notes, GILBERTSON purchased a $2 million promissory note and another $250,000 promissory note on behalf of Total Depth Foundation.
According to the indictment, in November 2011, at GILBERTSON’S direction, Dakota Plains combined the Senior Notes and Junior Notes into a series of consolidated promissory notes (the “Consolidated Notes”). GILBERTSON then directed Dakota Plains to alter the “additional payment” provision from the Junior Notes to (a) apply to the new total value of the Consolidated Notes; and (b) apply not only in the event of an IPO but also if Dakota Plains became public via a reverse merger. Specifically, the “additional payment” provision provided that if Dakota Plains’ average stock price exceeded $2.50 per share during the first 20 days of public trading, the noteholders would receive bonus payments which would increase relative to the average stock price.
According to the indictment, as part of the scheme, in late 2011 and early 2012, GILBERTSON arranged for Dakota Plains to become a publicly traded company by entering into a “reverse merger” agreement with MCT Holding Corporation (“MCT”), a public shell company that owned a single defunct tanning salon in Salt Lake City, Utah. At GILBERTSON’S direction, HOSKINS, who was a player and manager for GILBERTSON’S polo team, purchased 50,000 freely trading shares of MCT stock and opened a trading account with a broker in Salt Lake City, Utah, which would allow him to sell the MCT stock. HOSKINS, who had no prior investing experience or assets and a significant amount of debt, received $30,000 from GILBERTSON to purchase the stock. On March 23, 2012, following the merger of Dakota Plains with MCT, Dakota Plains Holdings became a publicly traded company.
According to the indictment, on the first day of public trading, HOSKINS offered to sell his newly acquired shares for an inflated price of approximately $12 per share at GILBERTSON’S direction, and continued to do so throughout the first 20 days of trading following the reverse merger. During this same time period, SHERMETA, who had a series of bogus consulting agreements with GILBERTSON, began purchasing shares of Dakota Plains stock on behalf of both himself and his clients at inflated prices without their knowledge. Throughout the 20-day period following the reverse merger, GILBERTSON, with the help of SHERMETA and HOSKINS, manipulated the price of Dakota Plains stock to increase the average trading price to $11.30 per share which, as stated in the “additional payment” provision in the Consolidated Notes, triggered a bonus payment of approximately $32,851,800 to GILBERTSON and the other noteholders. GILBERTSON, who controlled 40 percent of the Consolidated Notes, was entitled to more than $12 million in bonus payments.
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 and Kimberly A. Svendsen.
RYAN RANDALL GILBERTSON, 41
DOUGLAS VAUGHN HOSKINS, 48,
NICHOLAS HARRIS SHERMETA, 49
Wire Fraud, 5 counts
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United States Attorney’s Office, District of Minnesota: (612) 664-5600
The charges contained in the indictment are merely accusations, and the defendants are presumed innocent unless and until proven guilty.