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Published January 20, 2014, 09:32 AM

Energae receivership hearing scheduled Jan. 29

Energae LP of Clear Lake, Iowa, is waiting on a hearing scheduled for Jan. 29 and 30 in Cerro Gordo County, Iowa, in Mason City — a second effort to place the green energy company into receivership.

By: Mikkel Pates, Agweek

Energae LP of Clear Lake, Iowa, is waiting on a hearing scheduled for Jan. 29 and 30 in Cerro Gordo County, Iowa, in Mason City — a second effort to place the green energy company into receivership.

Alan Rosca, a Cleveland, Ohio-based lawyer working for the plaintiffs, says the hearings were initially scheduled for early November, but were postponed to allow time to investigate. Plaintiffs in the case are Cliff Hylden and his son Josh Hylden, both of Park River, N.D., and the Rev. Lee Laaveg of the Spencer, Iowa, area.

One goal of appointing a receiver would be to discover the true financial conditions of the company, which has acquired millions since 2008, either as investments or as loans. In one of the responses to receivership hearings last fall, Energae said the company has some $15 million in assets, a figure that has not been confirmed by an outside audit, Rosca says.

Rosca says the receivership case is similar to an earlier case filed in August by Robert Hylden and Darren Sheldon, both of Fargo, N.D. That case was filed Aug. 5, and settled on Aug. 26, on the eve of an Aug. 27 hearing.

Robert Hylden is a brother to both Cliff Hylden and to the Rev. Todd Hylden, Fergus Falls, Minn., who formerly was a marketing official of Energae LP.

Energae LP officials came to North Dakota in March 2012 and proposed a plan to convert a mothballed corn ethanol plant in Grafton, N.D., to a sugar beet-to-ethanol facility — a project that never got off the ground. Darrell D. Smith made a presentation to farmers in Grafton, talking about investment opportunities at a minimum of $10,000. The company previously had been in northeast North Dakota seeking investments in various energy projects, including an entity called Permeate Refining of Hopkinton, Iowa, and BFC Electric Inc. in Cedar Rapids, Iowa.

Smith barred from Energae

Smith, a stock broker who lives in Forest City, Iowa, and had offices in Mason City, Iowa, was allowed to resign from his brokerage firm in early March 2012, just before the Grafton meeting. Smith later did some work with an Iowa insurance company. The Iowa Securities and Insurance Division in April 2013 suspended Smith’s insurance and investment licenses and in July 2013, Smith agreed to be permanently barred from any activities in those areas, and particularly any activity with Energae.

Separately, the federal Internal Revenue Service and federal marshals on Oct. 3 and 4 visited and removed documents from Smith’s offices in Mason City, his home in Forest City, and Energae headquarters in Clear Lake. Witnesses say they were called to testify Oct. 23 in a federal grand jury in Cedar Rapids. No court documents have been filed in connection with those cases.

On Oct. 28, the Iowa Office of Insurance Commissioner notified Energae investors that they were investigating reports that Smith was “asking investors to make out checks to certain trust fund accounts,” despite losing his licenses. Tom Alger, a spokesman for the agency, on Jan. 16 said his agency’s investigation of Smith’s activities is continuing.

Meanwhile, Energae’s facilities are not operating. Shane Dodge, air quality division manager for Linn County Public Health in Cedar Rapids, says the facility there has not operated at least since a wind storm hit on May 20, 2013, damaging its cooling tower and various other buildings.

Dodge says Energae-related companies still owe $25,000 in unpaid former infraction penalties. Smith had been Dodge’s primary contact with the plant, and had failed to supply maintenance plans or required information on the types of fuel being used.

A supplier of inputs required to make ethanol at Permeate’s ethanol plant in Hopkinton says that plant has not operated for three or four months, and its staff was laid off. The company gasified wood byproducts under high-temperature, low-oxygen situations and made electricity.

The phone for Energae’s offices in Clear Lake was busy in several attempts by Agweek to contact the company. Messages left for Smith and attorney Kathryn Barnhill, were not answered.

A separate, related case is being pressed by lawyer John S. Chapman, also in Cleveland, Ohio. Chapman on July 16 filed a case with the Financial Industry Regulatory Authority, for compensation from Multi-Financial Securities Inc., the company that employed Smith as a stock broker. That FINRA action claims Multi-Financial (now called Cetera Advisors) failed to properly oversee Smith’s activities.

Separately, in June 2012, the Iowa Supreme Court Attorney Disciplinary Board filed a case against Energae’s attorney Barnhill with the Iowa Supreme Court on ethics violations, involving other unrelated cases. On Dec. 9, the Supreme Court’s grievance board recommended that the Supreme Court suspend Barnhill’s license for six months. No hearing has been set.