United States v. Gilbertson, 073020 FED8, 18-3745

Docket Nº:18-3745
Opinion Judge:BENTON, CIRCUIT JUDGE.
Party Name:United States of America Plaintiff- Appellee v. Ryan Randall Gilbertson Defendant-Appellant
Judge Panel:Before LOKEN, BENTON, and KELLY, Circuit Judges. KELLY, Circuit Judge, concurring.
Case Date:July 30, 2020
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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United States of America Plaintiff- Appellee

v.

Ryan Randall Gilbertson Defendant-Appellant

No. 18-3745

United States Court of Appeals, Eighth Circuit

July 30, 2020

Submitted: February 14, 2020

Appeal from United States District Court for the District of Minnesota

Before LOKEN, BENTON, and KELLY, Circuit Judges.

BENTON, CIRCUIT JUDGE.

A jury convicted Ryan Randall Gilbertson of 14 counts of aiding and abetting wire fraud, one count of conspiracy to commit securities fraud, and six counts of aiding and abetting securities fraud in violation of 18 U.S.C. § 1343, 18 U.S.C. § 371, and 15 U.S.C. §§ 78j(b) and 78ff. The district court1 sentenced him to 144 months' imprisonment and ordered him to pay $15, 135, 361 in restitution. Gilbertson appeals his conviction and the restitution. Having jurisdiction under 28 U.S.C. § 1291, this court affirms.

I.

In 2008, Gilbertson (a former derivatives trader), Michael Reger, and James Sankovitz founded Dakota Plains, an oil-transporting company. Gilbertson and Reger concealed their involvement, appointing their fathers as officers and sole members of the board of directors. However, they exercised complete control over the company. Gilbertson effectively controlled its finances.

In January 2011, Gilbertson caused Dakota Plains to issue $3.5 million in promissory notes at 12% interest (the "Senior Notes"). Gilbertson purchased a $1 million Senior Note for himself and another $100, 000 Senior Note for a nonprofit corporation he controlled.

In April 2011, Gilbertson and Reger installed Gabe Claypool as CEO of Dakota Plains. According to Claypool, "All the financial decisions were driven by Ryan [Gilbertson]." Within two weeks after Claypool became CEO, Gilbertson and Reger directed him to issue an additional $5.5 million in promissory notes at 12% interest (the "Junior Notes"). Gilbertson and Reger held the majority of the Junior Notes directly or indirectly. The Junior Notes included a complex bonus payment provision[2] entitling the noteholders to an additional payment (the "bonus payment") if the company went public through an initial public offering ("IPO"). The amount of the bonus payment was tied to the initial offering price of Dakota Plains stock at the time of the IPO; the higher the initial offering price, the higher the bonus payment. Claypool testified he had no "role in crafting" the bonus payment provision and "did not understand it at the time." Nevertheless, he approved it at Gilbertson's direction.

In October 2011, Gilbertson proposed consolidating the Senior Notes and Junior Notes into consolidated promissory notes (the "Consolidated Notes"). He also proposed amending the bonus payment provision to: (1) apply to the total value of the Consolidated Notes ($9 million), not just the amount lent under the Junior Notes ($5.5 million); (2) trigger not only by an IPO, but by any public offering, including a reverse merger; and (3) be calculated not by the IPO price, but by the average price of Dakota Plains stock during the first 20 days of public trading. Under the new provision, noteholders would be entitled to the bonus payment if Dakota Plains stock traded above an average closing price of $2.50 per share during the first 20 days of public trading. The higher the stock traded above that price, the larger the bonus payment. The Dakota Plains board, now comprised of additional members, approved the note consolidation and amendments to the bonus payment provision.

Unbeknownst to Claypool and the board, Gilbertson had already arranged to take Dakota Plains public through a reverse merger. Nine months earlier (in January 2011), Gilbertson approached Thomas Howells-a Utah-based business consultant specializing in reverse mergers-about locating a public "shell" company for a reverse merger. Howells identified a reverse-merger candidate in April 2011. The candidate-Malibu Club Tan ("MCT")-was a publicly traded company that had operated a now-defunct tanning salon in Salt Lake City.

Gilbertson wanted a shell company for the reverse merger with a small "float"-the number of shares tradeable immediately after the reverse merger. MCT had a relatively small float. Before the merger with Dakota Plains, MCT had about 640, 000 shares of outstanding stock. Due to regulatory restrictions, all but 92, 400 shares were "restricted," not freely tradeable until six months after a merger. Another 127, 200 shares were tradeable, but only with a legal opinion verifying certain requirements. All outstanding shares of Dakota Plains stock were restricted and not tradeable until six months after a merger. Thus, the only shares tradeable in the first six months after the reverse merger-and, critically for Gilbertson, during the first 20 days of public trading-were 219, 600 MCT shares (the "tradeable MCT shares").

The same day Gilbertson proposed the note consolidation and reverse merger (in October 2011), he texted Howells that he was ready to move forward with the reverse merger. During the negotiations with Howells, Gilbertson insisted that 50, 000 of the tradeable MCT shares be sold to a buyer of Gilbertson's choice before the merger. He also insisted that Howells keep this transaction "strictly confidential," allegedly to "help with the market," e.g., prevent current stockholders from selling after the merger and driving down the stock price.

In November 2011, MCT and Dakota Plains agreed to the reverse merger. By December 2011, Howells had located MCT stockholders willing to sell a total of 50, 000 of the tradeable MCT shares. MCT's attorney requested that Gilbertson sign a formal agreement prohibiting the sale of any of the 50, 000 shares within 90 days after the merger to avoid "unduly influenc[ing] the market." Gilbertson refused, instead offering an unwritten "gentleman's agreement" that the shares would not be sold within 90 days after the merger.

Rather than purchase the 50, 000 shares in his name, Gilbertson chose Doug Hoskins, a Minnesota real estate agent who played on and managed Gilbertson's polo team. Hoskins had no experience trading stock and no knowledge of Dakota Plains' business. Additionally, Hoskins owed tens of thousands of dollars in judgments and tax liens. Gilbertson negotiated the details of the sale. Hoskins never met nor communicated with Howells or the MCT stockholders; all communications went through Gilbertson. Unbeknownst to Howells or the MCT stockholders, Gilbertson wired Hoskins $30, 000 to purchase the shares. That same day, Gilbertson texted Howells that the "Wire for share purchases will go out tomorrow . . . as always please keep transactions strictly confidential."

Gilbertson also arranged for Hoskins to open a trading account at a brokerage firm specializing in penny stocks. Opening the account, Hoskins falsely represented himself "under penalty of perjury" as a sophisticated investor. He also made false representations in the share-purchase agreement (which Gilbertson edited), including that he was: (1) an "accredited investor;" (2) purchasing stock for himself only and not in concert with any other person or entity; and (3) not insolvent.

The reverse merger closed on March 22, 2012. That same day, Hoskins used Gilbertson's money to purchase 50, 000 of the tradeable MCT shares for $0.50 per share.[3] Nothing in the merger documents referenced the stipulation allowing Gilbertson to purchase 50, 000 of the tradeable MCT shares.

The first day of public trading on a "over-the-counter" market was March 23. In the first 30 minutes of trading, Gilbertson and Hoskins spoke by phone twice. Between these calls, Hoskins called his broker. That morning, Hoskins began selling his newly acquired shares for around $12 per share.

At the same time Gilbertson was directing Hoskins on selling, he also was directing Nicholas Shermeta, a stock broker at a Minneapolis securities brokerage firm, to buy Dakota Plains stock for $12 per share. Gilbertson and Shermeta had a longstanding financial and personal relationship. In Dakota Plains' early years, Shermeta found investors for the company in return for cash and stock. Shermeta, with the help of an attorney from Dakota Plains, hid his financial relationship with the company from his brokerage firm and customers, in violation of federal securities regulations.

Shermeta testified that "right before or after the stock was publicly trading" Gilbertson instructed him to find buyers of Dakota Plains stock for $12 per share. Gilbertson provided no rationale for the $12 purchase price; when Shermeta asked, Gilbertson responded only that "$12 is the number." Gilbertson also told Shermeta that he had other buyers who would buy the stock for $12 or higher.

On the first day of public trading, at Gilbertson's direction, Shermeta purchased 10, 000 shares of Dakota Plains stock. The second day, again at Gilbertson's direction, Shermeta purchased another 50, 000 shares for $12 per share.

For the next 18 days, at Gilbertson's direction, Hoskins sold his stock for around $12 per share. During this time, he was the largest single seller of Dakota Plains stock, representing 32% of the total sales. Also during this time, and at Gilbertson's direction, Shermeta purchased the stock, both personally and on behalf of his brokerage clients (without their permission or knowledge) for around $12 per share. According to Shermeta's trial testimony, many of these purchases did not make financial sense for his clients, 4 but Shermeta made them anyway "at the direction of Mr. Gilbertson to establish a share price of $12 a share." During this time, Shermeta was the largest single buyer of Dakota Plains stock, representing almost 54% of the total purchases.

On April 4, Hoskins emailed his broker asking why he had only...

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