Stealing dreams: Fraudster to serve 14.6 years, pay $1M
CEDAR RAPIDS, Iowa--A federal judge in Iowa on Oct. 5 sentenced Darrell Duane Smith of Forest City, Iowa, to nearly 15 years in prison for making millions in unauthorized withdrawals from the accounts of investors to fund his "biofuel dream," as ...
CEDAR RAPIDS, Iowa-A federal judge in Iowa on Oct. 5 sentenced Darrell Duane Smith of Forest City, Iowa, to nearly 15 years in prison for making millions in unauthorized withdrawals from the accounts of investors to fund his "biofuel dream," as prosecutors described it.
Chief U.S. District Judge Linda R. Reade said Smith, 62, will be behind bars until age 77, plus three more years of supervised probation. She said Smith refused to accept responsibility for his crimes and attempted to obstruct justice by trying to influence victims while in prison.
Victims who attended sentencing hearings said they were happy he would be in prison after stealing their time and money.
Smith pleaded guilty to wire fraud and aggravated identity theft charges July 24, 2017, in a deal that limited the case to 10 prominent victims. The government proved $2.4 million in thefts from the 10. Vavricek asked for $2.36 million in restitution, but Reade ordered only $1.06 million, owed proportionately to the 10 victims.
Smith had investor accounts from 273 people in several states. There were 230 in Iowa, but also investors in North Dakota, Minnesota and Wisconsin. Reade said many of Smith's victims were "unsophisticated in bioenergy" and he used jargon and religion to "misdirect" and confuse them.
The prosecutor was Assistant U.S. Attorney Timothy Vavricek, who described Smith's "betrayal of trust." He stole his own pastor's pension funds and preyed on a grieving widow.
"He is a thief; he has stolen," Vavricek emphasized, in words seemingly tailored for their impact on a self-professed biblical scholar.
Evidence showed Smith used company money to pay personal credit cards and a trip to Hawaii for a grown daughter, among other things. Vavricek said that Smith, while in prison, had worked through a brother to try to tamper with victims and hide his own money from creditors.
Broker to thief
From June 2001 to March 2012, Smith was a stockbroker and investment adviser for various firms, including Multi-Financial Services Corp. (later known as Cetera Advisers LLC).
In a breach of ethics, Smith at the same time also was promoting investments into factories, including Permeate Refining LLC of Hopkinton, Iowa, which made ethanol from agricultural processing byproducts. In 2009, Smith's investment partnership, Energae LP, purchased 49 percent of Permeate, which also encompassed a plant at Cedar Rapids, Iowa, which made electricity from wood waste.
Prosecutors said from 2010 through April 2013, Smith forged investment client signatures and blank authorization forms to take funds from their accounts without their knowledge and funnel them into Permeate Refining and to invest in other entities.
Smith later sold tax credits for these non-corn or "advanced" renewable fuels that later were judged invalid by the state of Iowa. Smith promoted the tax credits long after this decision and some investors in North Dakota and elsewhere reported using them successfully on federal taxes.
In April 2013, the Iowa insurance commissioner suspended Smith's insurance license after receiving fraud complaints. Smith was allowed to voluntarily resign Multi-Financial in July 2014. Some investment victims, including North Dakotans, obtained settlements from Cetera Advisors to recover their investments.
Waterloo in N.D.
A foray into North Dakota contributed to his demise.
On March 23, 2012, Smith came to Grafton, N.D., to ask beet farmers to invest a minimum of $10,000 in Energae LP Holdings and grow sugar beets-not for making sugar but for making ethanol. Smith told the Red River Valley farmers he had already arranged to reopen the Alchem Ltd. corn ethanol plant in Grafton that had been shuttered for seven years.
Smith said he'd fix the Alchem factory's roof and remodel it to make ethanol from wheat, and sugar beets at a higher subsidy rate than corn ethanol. He said the plant would process crops year-round. Smith said "one investment buys them all," and touted his biofuels projects in Iowa and elsewhere.
In his powerpoint presentation at Grafton, Smith claimed former state Sen. Duaine Espegard, R-Grand Forks, and then the chairman of the North Dakota Board of Higher Education, was "in negotiation" to be "project manager," which Espegard strongly denied.
The Grafton project never went anywhere and the plant was eventually scrapped and dismantled.
Through the next five years, Agweek reported extensively on Smith's record- complaints to the Financial Industry Regulatory Authority Inc., his failure to register his company to do business in North Dakota and about his false claims of connections to other individuals and companies. At times through the years, Smith and his lawyers at times threatened to sue Agweek for printing from public records.
In 2016, Smith and partner Randy Less were separately convicted as accomplices for failing to pay the IRS after collecting federal income taxes from workers. Smith had nearly completed his 13 months on that case when prosecutors slapped him with the wire fraud and identity theft charges.
Greedy for others
In his recent sentencing hearings, Smith shuffled into court with shackled hands and ankles, dressed in gray sweatpants and T-shirt, and white slippers. Through hours of proceedings, Smith kept his eyes down and did not look at Judge Reade.
For more than 40 minutes, Smith in an "allocution" statement, offered a defiant, rambling, extensive recounting what he described as accomplishments and scientific underpinnings of technologies.
Smith said he'd worked 16-hour days, six days a week for Energae. He said the couple had "always lived on less than $30,000" in annual income from the company. He described himself as "greedy only for the investors."
"My intent was to bless them (victims) and enrich their lives," Smith said, noting he's "always had the gift of giving" and claimed to have had discretionary authority to sign for some of the investments.
He said his businesses started going sour in 2012 when Less lost a contract with Cargill to supply feedstock for an ethanol plant at Hopkinton, Iowa.
Several times during Smith's statement, his lawyer, F. Montgomery Brown of West Des Moines, Iowa, put his arm on his client's shoulder to interrupt. After one visit, Smith turned suddenly contrite, saying he was "sorry" that clients lost money.
"I don't want to die in prison," Smith told the judge. "I just want to go home and have a quiet life with my wife," who sat with her grown daughter in the courtroom. Smith said, "if" the judge returned him to jail, he said he would continue to "share the Bible" with fellow prisoners, some of whom were suicidal.
Reade said Smith has until Oct. 19 to file an appeal to the 8th Circuit Appeals Court. She said it seemed possible there could be civil litigation from former clients.
Brown asked a second time for permission to withdraw from the case as Smith's attorney. Reade had denied an earlier request when Brown told her Smith didn't have the ability to pay. Reade said Brown would need to stay on in the eventuality of an appeal and then could ask the appeals court for permission to withdraw, potentially to replace him with a government-provided lawyer.
Officials at the Bremer County Jail in Waverly, Iowa, said Smith remained housed there but under U.S. Marshals custody. Reade said he will be assigned to a Bureau of Prisons facility somewhere in the region.