Northern Oil and Gas Inc., which invests in drilling projects in North Dakota, on Tuesday fired CEO Michael Reger after he said he was being investigated by federal regulators for potential violations involving one of his investments, Bakken Shale-focused midstreamer Dakota Plains Holdings Inc.

Reger, 40, has been CEO of the Wayzata, MN-based and gas company since 2007. Reger founded Northern with Ryan Gilbertson, and they helped found Dakota Plains in 2008. A public offering was launched in 2012.

Last December the U.S. Securities and Exchange Commission (SEC) made public its investigation into the public offering of Dakota Plains, also based in Wayzata, and the $9 million in loans made to the company by Reger and his partners. The promissory notes included an escalator clause that paid noteholders a bonus based on its stock price during its first 20 days of trading. The shares initially rose to $12, and remained near that price for 20 days and then declined, never reaching that level again.

For the $9 million in loans, the bonus was $33 million.

Dakota Plains is an integrated midstream energy company operating the Pioneer Terminal in Mountrail County, ND. Its fracture sand business provides services for UNIMIN Corp., a leading global producer of quartz proppant and fracture sand supplier to producers operating in the Williston Basin. Two years ago Dakota Plains Holdings and Hiland Crude LLC announced an interconnection agreement that would allow an added 15,000 b/d of Bakken crude to get to the Pioneer Terminal (see Shale Daily, Aug. 19, 2014). Officials for both companies indicated then that capacity for oil deliveries to the Pioneer terminal could eventually grow to 60,000 b/d.

On June 30, Dakota Plains said in a filing to the SEC that the New York Stock Exchange had suspended trading and begun delisting proceedings. Its stock now is worth about 3 cents/share.

Reger’s termination came after he notified Northern last Thursday (Aug. 11) that he had received a Wells notice from the SEC, in which commission staff made a “preliminary determination to recommend that the SEC institute an enforcement action against Mr. Reger.” A Wells notice is sent by the SEC to people or firms when it is planning to bring an enforcement action against them.

Reger, who owns about 7% of Northern, was the second-largest participant in the Dakota Plains loan package. The SEC is investigating that loan, as well as other stock trades made by Reger in 2012.

In the filing Tuesday with the SEC, Northern said Reger was terminated as CEO and removed from the board immediately. CFO Thomas Stoelk, who has been the financial chief since 2011, has been appointed interim CEO.

“The company does not believe that Mr. Reger will be entitled to any severance payment in connection with his separation from the company,” the filing stated. Northern indicated that neither the company nor its conduct appear to be the focus of the SEC probe. It also said it is cooperating with the SEC.

Northern also is signaling the company could be up for sale.

“In light of the challenges of operating in a lower commodity price environment, Northern’s board has been evaluating strategic alternatives to increase shareholder value,” the filing stated. “To that end, the company engaged Tudor, Pickering, Holt & Co. as its financial adviser.”

Reger, who denied any wrongdoing in connection with Dakota Plains, said he is cooperating with the SEC. He has filed a wrongful termination lawsuit against his former employer claiming breach of contract and defamation. According to the lawsuit, Northern received a subpoena from the SEC for company documents and then decided to conduct an internal investigation into Reger’s involvement with Dakota Plains “in order to determine…fitness to continue as CEO,” Reger’s lawsuit stated. “Northern’s investigation did not conclude that Mr. Reger was unfit or unable to continue as CEO.”

He claimed in the lawsuit that Northern informed him he would be terminated but that he would be provided with full severance benefits per his employment agreement for termination with cause. However, after approaching a final agreement on Monday (Aug. 15), “Northern changed its strategy and began making new and wholly unreasonable demands,” the lawsuit said. When he refused the demands, he said Northern indicated it would terminate him for cause.

The lawsuit was filed in Fourth Judicial Court in Minneapolis, MN. Northern’s statement that Reger was terminated without benefits is “knowingly false and defamatory and made with malice,” the former CEO’s lawsuit claimed. He is asking for damages of more than $50,000 and an order requiring Northern to correct the SEC filing regarding his termination that states “the true facts relating to Mr. Reger’s termination.”