Smith reaches settlement in IowaRenewable energy promoter Darrell Smith of Forest City, Iowa, finalized an agreement to drop his appeal to Iowa sanctions that strip him permanently of licenses to sell insurance or investments in that state. Smith agreed to pay a $5,000 civil penalty.
By: Mikkel Pates, Agweek
Renewable energy promoter Darrell Smith of Forest City, Iowa, finalized an agreement to drop his appeal to Iowa sanctions that strip him permanently of licenses to sell insurance or investments in that state. Smith agreed to pay a $5,000 civil penalty.
Iowa Insurance Commissioner Nick Gerhart signed the settlement agreement on July 15.
Meanwhile, a Cleveland law firm on July 16 filed a case with a federal regulator to obtain more than $1 million for former investors from northern Iowa. Smith had promoted investments for North Dakota sugar beet-ethanol farmers in Grafton, N.D., in 2012. A separate Cleveland firm says it is working on a similar action.
Until May 2012, Smith had a stock sales office in Mason City, Iowa. On April 4, 2013, the Iowa Insurance Division suspended Smith’s license to sell insurance in that state.
The IID gave Smith 30 days to challenge the suspension. Smith filed an appeal. The appeal hearing was scheduled for July 31, but on July 3, Smith signed his negotiated settlement.
Also in April, the IID had ordered Smith to cease and desist any activity with Energae LP, a Clear Lake, Iowa-based company. Some North Dakota farmers and others have told Agweek they invested in Energae, or its predecessor names. The IID alleged that in some cases dating to 2008, Smith had transferred money out of insurance client accounts several times without their knowledge to invest in other entities, and evidence indicates he’d used some investor money for his own personal use.
In the end, Smith agreed to permanent sanctions “without admitting or denying” IID allegations of mishandling insurance and investment funds. The $10,000 fine was reduced to a $5,000 civil penalty in the settlement.
For the appeal and settlement negotiations with the IID, Smith was represented by Steve Wandro of Wandro & Associates of Des Moines. Wandro told Agweek on July 12 that Smith is of “retirement age” and had reached an “accommodation with the state.
“We don’t agree that the allegations are true,” Wandro said, adding that his client didn’t want to “go through the long, expensive process of challenging these allegations.”
Tom Alger, an IID spokesman, says the Iowa agreement doesn’t automatically affect Smith’s status in other states.
“If he has licenses in other states, he will have to report Iowa’s action to those states,” Alger says.
FINRA action filed
Meanwhile, John S. Chapman of the Chapman LLC firm in Cleveland, tells Agweek that on July 16, his firm filed claims against Smith’s former securities employer, through the Financial Industry Regulatory Authority. The FINRA claim is on behalf of three northern Iowa individuals who had invested their savings with Smith’s “iLenders/Energae program,” Chapman says. The claims are designed to recover almost $1 million in losses.
In the papers filed with FINRA Dispute Resolutions, the Iowa families charge that Denver-based Cetera Advisors LLC (formerly Multi-Financial Securities, with which Smith had been affiliated as a securities broker) is “liable for investor losses because it failed to detect and stop Smith’s fraudulent and illegal sales of these investments.” The investors are demanding $680,000 in compensation for the money they lost, plus interest, attorney’s fees, case costs, as well as punitive damages for a total of $1 million, Chapman says.
Agweek contacted Cetera, but the company’s legal department did not immediately return a call.
According to the Chapman filing, “Darrell Smith ran this I-lenders program for years, and he couldn’t have kept it going without Multi-Financial turning a blind eye to what was going on.” He says the action is not a class action case.
According to a press statement from Chapman, Smith “misled investors to believe he would invest their savings safely for high returns and tax benefits in an ethanol production program called Energae.” Chapman is working with the Fitzsimmons & Vervaecke law firm in Mason City.
“The investors claim that Smith basically stole the money they entrusted to him,” Chapman says.
A month ago, Chapman had created a website asking those who invested in Energae LP and I-Lenders Investment to contact his firm. On that website, Chapman links to an Agweek article about Smith’s activities in Grafton. In a video on the website, Chapman invites investors or former investors to contact him, confidentially, for no charge.
“But let’s be mindful that in this country, you’re innocent until you’re proven guilty,” he says in the video.
Earlier and separately, Alan Rosca, an attorney in Cleveland, was working on the case. On July 16, he says he expected to file a similar complaint on behalf of two clients. In May, he also started a website looking for investors in Energae LP, or with related dealings with Darrell Smith: darrellsmithinvestors.com. He describes the website as the resource for investors seeking help and information related to the Energae Holdings and I-Lenders programs promoted by Smith.
Rosca told Agweek that he and colleague Joe Peiffer have “debriefed individuals with knowledge of relevant facts” and are looking to take steps to “help seek compensation.” They, too, say a prior employer “failed in its duties to supervise the investment-related activities” of Smith. Rosca and Pfeiffer are working with West Des Moines attorney J. Barton Goplerud, who has taught advocacy and mediation at Drake Law School since 1993.
Rosca, an adjunct lecturer in securities regulations at Cleveland Marshall College of Law, says among other things, some investors were offered tax benefits in conjunction with their investment, because it is a “green energy.”
Smith in Grafton
Agweek first covered Smith in late March 2012, when he spoke at a meeting in Grafton, N.D. about how farmers in that area might become shareholders and grow sugar beets for a mothballed corn ethanol plant there. In early March 2012, Smith had been allowed to resign from selling stocks for Multi-Financial Securities.
In the Grafton meeting, Smith described the company, Energae Holdings, and how it had plans to convert the plant to a sugar beet-to-ethanol or wheat byproduct-to-ethanol plant for the 2012 season. He told farmers in Grafton that their investment in the Grafton plant could make them owners in the larger Energae Holdings company that also had an ownership in Permeate Refining Inc., in Hopkinton, Iowa, and a waste-to-electricity generation plant in Cedar Rapids, Iowa, among other things. He later said his presentation was informational, not a formal investment pitch.