Schafer: Settlement doesn't mar executive's optimism

You have to admire the sunny attitude of Michael Reger, who was fired in August as CEO of Northern Oil and Gas and who just settled an enforcement action with the Securities and Exchange Commission that cost him nearly $8 million.

He sees no doors now closed to him as his business career unfolds.

His optimism managed to come through in a sober, two-page e-mail he wrote rather than agreeing to an interview, as he's still involved in a lawsuit. While his lawyers almost certainly carefully reviewed it, it sure didn't read like it came from the laptop of a corporate lawyer.

He pointed out that the enforcement action with the SEC was settled without Reger having admitted to the SEC's findings. And the SEC did not bar him from serving as an officer or board member of a publicly held company.

"I wanted all interested parties — including the shareholders of Northern — to know these facts as I want my career prospects to remain as open as possible," he wrote, explaining the statement he released last week on news of the SEC settlement. "That includes, by the way, the possibility of returning to Northern Oil once again."

It makes sense to look ahead, as he's only 40, although he also has years of CEO experience. The company he started with Ryan Gilbertson, Northern Oil and Gas, was one of the early successes that came out of the oil boom in western North Dakota and eastern Montana.

What he has right now, at least the way he seems to see it, is a problem of optics. That's business jargon for something that looks bad but maybe really isn't. Mercifully this term appears to be fading in popularity, but it's a word that still meant something to Reger a few years ago.

"We are not perfect, but we did a really good job building" the company, Reger later explained to a columnist with Twin Cities Business magazine. "We are more cognizant now of the optics, but nothing we have done is inappropriate."

What the SEC seemed to really care about, however, came after this conversation about optics. The little company that got on its radar was Dakota Plains Holdings. Also based in Wayzata and also with operations in the oil region, Dakota Plains seemed to share more than a little of its DNA with Northern Oil.

The business was formed in 2008 by Reger and Gilbertson, who left Northern in the fall of 2012. And like Northern Oil, it became public via what's usually called a reverse merger, when a company goes public by merging into a shell company that has nothing more than a publicly traded stock. This kind of a deal has long been a red flag for investors and regulators.

As Dakota Plains the entity has never really been a successful public company, and its latest quarterly filing said it is thinking of a bankruptcy filing. But it had a briefly viable stock just after the reverse merger in early 2012, when the share price really mattered to investors who had loaned the company money.

Their investor-held promissory notes had a provision that called for note holders to get bonus payments based on the average price of Dakota Plains stock in its first 20 days of public trading. The bonus payments were triggered at $2.50 per share. In fact the stock quickly got to about $12 and stayed near that price for nearly the entire first 20 days of trading before heading south, generating total additional payments of nearly $33 million.

"It's worth noting that the SEC filed a separate federal lawsuit charging others involved in Dakota Plains with fraudulent conduct, including a stock manipulation scheme in connection with 2012 trading of Dakota Plains stock," he wrote in his e-mail. "These are the type of charges, if proven, that would result in the persons charged being barred from serving as an officer or board member of a public company. That is not my case, and I am not a party to that federal lawsuit."

He described how he had alerted the board of Northern Oil in August that he had received a notice from the SEC that the agency might sue him. What happened after that is the basis of a dispute with Northern, but in his account he was told he could leave the company "without cause," entitling him to severance pay.

Before signing the deal, however, the board wanted to extend his noncompete provision from one year to two years, he wrote. It also wanted to keep him from selling his Northern Oil stock for at least a year. He refused, and it's only then, he claims, that Northern fired him for cause.

He promptly brought a wrongful termination and defamation lawsuit, and the company responded by denying his principal claims. It probably goes without saying that this ongoing lawsuit lowers the odds to near zero of his quickly returning to Northern Oil.

His basic point, that the people the SEC is still after don't include him, is a fair one. Yet aspiring to be a leader of any public company now seems to be long-shot ambition. He might be as savvy as they come in the oil business, great at spotting valuable sites to drill and organizing a business to control them.

And at least in that arena of privately held businesses, so few people will be watching that the optics won't really matter anymore.