Regular readers of this blog know that class action securities fraud lawsuits almost never go to trial. But “almost never” is not the same as “never.” Every now and then, there is an unusual case that does go to trial. This past week, a federal court jury reached a verdict in one of those rare and unusual cases. On June 14, 2022, a federal jury in the Southern District of New York held after trial that Michael Reger, co-founder of Dakota Plains Holdings, Inc. was liable for securities fraud and control person fraud, but not for insider trading. Reger was the sole remaining defendant in the case after the other defendants last month reached a settlement. A copy of the jury’s June 14, 2022 verdict form can be found here.



Dakota Plains holding was a crude oil storage and transportation company. The company was created in 2012 as a result of a reverse merger between predecessor company Dakota Plains, Inc. with a publicly traded shell company. Ryan Gilbertson and Michael Reger were the co-founders of the predecessor company.


In October 2016, the SEC filed an enforcement action asserting that they siphoned off millions of dollars from the predecessor company. The SEC alleged that prior to the merger Gilbertson and Reger caused the company to issue $9 million in promissory notes. They then had the terms of the notes revised so that the two individuals (and others) would receive significant bonuses if the post-merger company’s stock maintained certain price levels in the first 20 days following the merger. The two (and others) allegedly executed a scheme to manipulate the company’s stock price in order to trigger the bonus payments.


Gilbertson was also separately criminally charged concerning the alleged scheme, and following his conviction he was sentenced to 12 years in prison.


In addition to these regulatory and enforcement actions, shareholder plaintiffs also separately filed a securities class action lawsuit based on the same allegations. In December 2016, a shareholder plaintiff brought the first of several securities class action lawsuits in the Southern District of New York against the company and certain of its executives, including Gilbertson and Reger. Several other related actions were subsequently filed. The actions were consolidated and lead plaintiff selected. The plaintiffs ultimately filed amended consolidated complaints; the last and operative amended complaint can be found here.


In May 2022, as the case was progressing toward trial, all of the remaining parties to the action except for Reger agreed to settle the case for $14 million. Gilbertson agreed to a non-monetary settlement in which he agreed to testify against Reger at trial.


In early June, the jury trial against Reger commenced in Southern District of New York Judge Jed Rakoff’s courtroom. Following trial, the case was sent to the jury.


On June 14, 2022, the jury reached a verdict. As reflected on the Verdict Form, the jury made several specific findings. First, they found Reger liable for securities fraud, and also found that the amount of inflation in Dakota Plains’s stock during the class period was 57%. Second, they found Reger liable for control person liability for Dakota Plains’s securities fraud; that Reger acted “recklessly” than knowingly; and that the inflation of Dakota Plains’ stock during the class period was 57%. Third, the jury found that Reger was not liable for insider trading.



As I noted at the outset, a securities class action lawsuit going to a verdict following trial is rare. According to running study of securities litigation trials maintained by Adam Savett, Esq., Director of Communications and Institutional Research at the Levi & Korsinsky law firm, with this latest securities suit trial verdict, there have now been 26 securities class action lawsuits that have gone to verdict (or bench decision) after trial since 1996. During that same time period, there were an additional seven cases that went to trial that resulted in a settlement or summary or default judgement during trial.


To give you a further sense of how rare a verdict following trial is in a securities class action lawsuit, the last case that went all the way to a post-trial verdict was the Puma Biotechnology case, back in February 2019 (as discussed here).


I am not close enough to this case to know why this case went to trial when that so rarely happens. Just looking at the bare record, it just appears that Reger chose (or was unable to) participate in the settlement that the other defendants reached in May 2022. If there are any readers out there that have any insight on why the case against Reger went to trial, I would be grateful if you could please let me know. I will update this post with anything I am able to learn. UPDATE: According to a June 16, 2022 article in the Minneapolis Star-Tribune (here) forwarded to me by a loyal reader, Reger declined to join the others in the settlement because he believed he “did nothing wrong.” The article also supplies the additional interesting information that Gilbertson testified at the trial from prison via video link.


It also isn’t clear how the jury findings will translate into actual damages. The jury’s findings that the amount of inflation in Dakota Plains’s stock during the class period was 57% doesn’t allow us to determine the dollars involved; in order to determine the number of dollars, we would need to know what “the amount of inflation” was. It isn’t clear from the record how or when this will be calculated or who will do it. Again, I would be grateful if there is anyone out there that has insight into this damages question, I would be grateful if you could please let me know. I will update this post with anything I am able to learn. UPDATE: According to the June 16 Minneapolis Star-Tribune article to which I linked in the prior paragraph, “U.S. District Court Judge Jed Rakoff will decide on any damages Reger must pay to shareholders. Plaintiffs estimated in a court filing that the $14 million settlement with eight Dakota Plains directors and executives accounted for only 21% of total damages.” The newspaper article also stated that the $14 million settlement is to be funded entirely by D&O insurance.


In putting this post-trial verdict into context, it is worth considering what the scoreboard shows. That is, of the 26 securities class action lawsuits that have gone to a verdict since 1996, and taking post-trial proceedings into account (including post-verdict appeals), 14 of the 26 cases that have resulted in a verdict have gone for the plaintiffs and 12 have gone in the defendants’ favor. A slight advantage for the plaintiffs, but not an overwhelming one. Also, I am sure that the parties in any one of these cases might well dispute whether or particular outcome was in fact favorable to the plaintiffs or the defendants. But there is enough there to show that going to trial is a precarious undertaking, for either side.


The case undoubtedly will now move to what likely will be an extended series of post-trial motions and, almost certainly after that, an appeal. While this case has further to run, the fact of the jury verdict in and of itself is an unusual and noteworthy development. UPDATE: The Minneapolis Star-Tribune article to which I linked and quoted Reger as saying that the jury’s verdict was “inconsistent with the law and the facts,” and that he will appeal. “At all times, I worked to benefit all Dakota Plains shareholders, and I expect to be vindicated.”


Juneteenth Holiday, No Post on Monday: I will not be publishing a post on Monday, June 20 , 2022, in recognition of the new federal Juneteenth Holiday. The Juneteenth Holiday recognizes and celebrates the June 19, 1865 pronouncement of the freedom of enslaved people of Texas. As discussed in a Wikipedia article about the holiday (here), Juneteenth was recognized a U.S. federal holiday in 2021. I honor and respect the values that this holiday represents, and so I will not be publishing a post on Monday.