FARGO, N.D. -- A man promoting investments in a sugar beet-to-ethanol project at Grafton, N.D., has resigned as a securities broker with Multi-Financial Securities Corp., after an investor-client complaint.
Darrell Duane Smith on March 23 was the main presenter for Energae LP Holdings at a meeting in Grafton, N.D. Energae LP reportedly is buying the former Alchem Ltd. ethanol plant in Grafton. The Grafton plant was sold at auction in 2010 but repurchased by Northeast Energy LLC, whose registered agent is Rick Newman. Rick Newman is a relative of Harold Newman of Jamestown, N.D., who had owned it since 1982 and closed it in 2007.
In an interview at the meeting, Smith stressed that he is not an employee of Energae LP, based in Clear Lake, Iowa. Nevertheless, Smith was the chief spokesman and asked farmers to invest in Energae and to grow beets for the company.
In his presentation, Smith said participating farmers would have to invest a minimum of $10,000 in Energae LP Holdings. That amount ($500 an acre to deliver at least 20 acres of beets, to be grown in the 2012 crop year) would entitle the farmer to a $50 per ton beet price and any profits made by the larger Energae company. The company wants 14,000 acres of beets, he said. He later said he had acquired 400 beet acres for the plant, which would imply an investment of $200,000.
Smith earlier indicated that the company is seeking beets and investments for 2012, but that the company might start the plant with other kinds of feedstocks - wheat flour byproducts, or other - from sources he declined to specify.
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Smith says an investor in Energae LP would have ownership or investment interests in various biofuels companies, especially the Permeate Refining plant in Hopkinton, Iowa, that he says has successfully produced ethanol from various agricultural waste byproducts. Energae also has invested in BFC Electric, a biofuel-to-electricity plant in Cedar Rapids, Iowa.
Despite his prominence in the meeting, Smith emphasized he's only a "loan representative" for the project and "one of the board members" for the company. He said its finances are directed by Jerry Krause, who has real estate dealings and once owned a truck stop in Iowa.
In his slide presentation at the meeting, Smith identified Duaine Espegard of Grand Forks, N.D., as the company's "project manager" but "in negotiation." On April 2, Agweek reported that Espegard, a former Republican state senator and a former banking chief executive and current member of the North Dakota Board of Higher Education, said he'd only ever spoken once with Energae -- only on the phone, and only the day of the Grafton meeting. He had asked Smith not to use his name. Smith acknowledged to Agweek that using Espegard's name had been a "mistake."
On April 18, Espegard repeated that he had still not yet spoken with Energae officials but had not read news reports on the company. He said he would call back after he'd studied the matter. Sugar beet planting for the 2012 crop has had a good start in the northern Red River Valley.
Agweek also reported that Energae LP Holdings was not registered with the North Dakota Secretary of State's office to do business in the state. Here are some other details that Agweek has learned:
• Energae LP Holdings is still not registered with the Secretary of State's office in North Dakota, nor is it registered in Minnesota. Energae LP has been registered in Iowa since June 30, 2008, with Krause as its registered agent. Algae Energae LP and Black Lion Energae were previously listed but have since gone inactive.
After the Agweek story was published, Smith left numerous phone messages with Agweek -- first, to say that the publication had erred in saying the company wasn't registered; finally, to admit the company wasn't registered. The Secretary of State's office now confirms Energae on March 5 had faxed an application for registration. Because of a backlog, the agency didn't send it back to Krause for corrections until April 13. According to the application, the local agent for the company will be listed as Rick Newman, Clifford, N.D., when approved.
• Smith, at the investor meeting in Grafton, told Agweek that he didn't want his photograph used with a story because of his securities responsibilities. He posed for a mug shot anyway, and in a later conversation implied that Multi-Financial Securities officials weren't pleased.
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Agweek subsequently learned through the Financial Industry Regulatory Authority (FINRA) website that Smith on March 2, was "permitted to resign" from Multi-Financial Securities of Denver. Smith had been registered to sell Multi-Financial's products since February 2001. Smith had been doing business as Corporate Gold Benefits, Mason City, Iowa. The reason for the resignation listed on the website was the "client alleged (the) representative (Smith) signed a variable annuity application with the client's consent, in violation of the firms (sic) policies."
Smith couldn't explain why Multi-Financial would still be concerned with a photo or story, but acknowledged he'd resigned.
Earlier, FINRA reported that Smith in December 1991 had received a complaint in Alaska for signing up a client for a Mutual of New York life insurance policy that "he either didn't fully understand or was not appropriate for him."
• At the March 23 meeting, Smith told farmers his company had approached American Crystal Sugar Co., about the company's plans. Jeff Schweitzer, a spokesman for the Moorhead, Minn.-based farmer-owned cooperative, confirmed the meeting but said the co-op told the Energae officials they would not be working together. "Our business model is based on sugar and we're going to stick to that; that's where we're at right now," Schweitzer says.
Schweitzer on April 16 said the co-op does have a concern about the logistics. Farmers in the co-op had already planted 30,000 acres of sugar beets for 2012, with a goal of 435,000 acres.
If growers are under contract with American Crystal to produce beets for sugar, they have to make sure any acres not backed up by co-op stock shares are used in the energy business and to "make sure those acres don't end up at American Crystal," Schweitzer said. He says the co-op diligently measures shareholder plantings with its ag staff, so that it conforms to the number of allowable planted acres. "It could add some complexity to that," Schweitzer said. Asked whether that kind of arrangement were workable, Schweitzer declined comment and invited Agweek to ask a farmer.
