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Published June 09, 2014, 09:31 AM

Department of Revenue says production can’t be verified

FARGO, N.D. — The Iowa Department of Revenue has warned at least one investor who owns shares in Energae LP of Clear Lake, Iowa, that tax credits for the company’s green energy production couldn’t be verified for 2012, and the credits must be paid back.

By: Mikkel Pates, Agweek

FARGO, N.D. — The Iowa Department of Revenue has warned at least one investor who owns shares in Energae LP of Clear Lake, Iowa, that tax credits for the company’s green energy production couldn’t be verified for 2012, and the credits must be paid back.

Energae is the company that came to North Dakota in March 2012 to offer farmers an opportunity to grow sugar beets for a mothballed corn-ethanol plant in Grafton. Darrell Duane Smith, who spoke on behalf of the company, has been permanently stripped of his insurance and securities licenses by the Iowa Insurance Division.

In a letter dated May 20, 2014, David Keenan, a revenue examiner for the compliance division of the Iowa Department of Revenue, told an unidentified taxpayer from Iowa to pay back $1,131.73. Victoria Daniels, public information officer for the agency, declined to comment on what might have disqualified the credits, or whether the denial affects only 2012. She also declined to comment on whether the department’s decision was focused on just one audited person or whether it will be extended to others who used the credits.

North Dakota Tax Department officials say they are not aware of anyone using credits from Energae LP in the state, even though at least one taxpayer told Agweek they’d used the credits for 2012.

John S. Chapman, a Cleveland attorney, provided the Iowa tax letter to Agweek. Chapman represents about 35 clients, all in Iowa, and has a separate, related action under way with the Financial Industry Regulatory Authority.

In the FINRA action, filed July 16, Chapman alleges that Multi-Financial Securities Corp. failed to adequately supervise Smith while he was a stockbroker for them. Chapman’s clients are looking for more than $1 million in compensation from Multi-Financial’s successors — Cetera Advisors and RCS Capital Corp. Chapman has been advised that a hearing will be set within nine months.

“The point of this is that it was part of every investor’s reasoning,” Chapman says. “They offered a dollar-for-dollar tax credit, so people thought, ‘How can you lose?’ They may find out. I hope things come to a head soon because it seems to me there’s a lot of confusion and misinformation in the investing public. I think there needs to be some clarity.”

Receivership for Energae

Alan Rosca, from Cleveland, Ohio, is in the process of settling a second case in Cerro Gordo County, Iowa, attempting to put Energae into receivership. Plaintiffs are Clifton Hylden his son Josh Hylden of Park River, N.D., and the Rev. Lee Laaveg of the Spencer, Iowa, area.

An earlier state petition for receivership in 2013 was filed by Robert Hylden and Darren Sheldon, both of Fargo, N.D. That petition was filed Aug. 5 and settled Aug. 26.

Separately, the Iowa Supreme Court on May 30 suspended the attorney license for Energae attorney Kathryn Barnhill for 60 days (not the six months recommended by the Grievance Commission of the Supreme Court) because of “multiple violations” involving four separate legal matters. Among other things, Barnhill says she’d taken steps to improve practices and that she’d already paid punitive judgments totaling nearly $89,000. The court indicated the violations “primarily involve overzealousness and sloppy practices.”

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