A new twist in Iowa/N.D. biofuels fraud case
CEDAR RAPIDS, Iowa -- A federal judge in Iowa on July 5 refused a biofuels promoter's motion to remove herself in his wire fraud and aggravated identity theft case in which he has promised to plead guilty.
CEDAR RAPIDS, Iowa - A federal judge in Iowa on July 5 refused a biofuels promoter's motion to remove herself in his wire fraud and aggravated identity theft case in which he has promised to plead guilty.
Darrell Duane Smith, Forest City, Iowa, on June 18 asked that Chief U.S. District Court Judge Linda Rae Reade, recuse herself, to effectively put another judge could be assigned in her place. Smith initially promised to plead guilty to some of the counts, but then cancelled the plea hearing and notified the court he would file the motion to remove Reade. A new plea hearing is set July 25 at 2 p.m.
Smith, 61, was a primary fund-raiser for companies including Energae L.P., of Clear Lake, Iowa, which had significant ownership in Permeate Refining Inc., an ethanol plant in Hopkinton, Iowa. Smith remains in jail in Linn County, Iowa, for violating earlier pre-trial rules against contacting investors. North Dakotans eventually filed cases against Smith through the Financial Industry Regulatory Authority. Nine FINRA undisclosed money settlements occurred from 2012 to 2014, on claim totals of $4.9 million.
In March 2012, Smith tried in vain to get enlist farmers in the Grafton, N.D., area, to raise sugar beets for an ethanol plant. He described an opportunity to invest at least $10,000 in a then-mothballed Grafton corn ethanol plant, to combine with his Energae companies in Iowa and elsewhere. Smith also promoted tax credits for non-corn ethanol production, which were later declared invalid by the state of Iowa.
Reade, a South Dakota native, has been described by legal admirers as a "stickler" and tough on white collar crime and labeled as unethical by some critics. In 2009 Reade attracted national headlines in the legal community when she sentenced Sholom Rubashkin, 51-year-old former Iowa kosher slaughterhouse executive, to 27 years in prison for financial fraud when prosecutors sought a 25-year sentence. The case involved 86 fraud charges and 389 workers arrested on immigrant violations.
The 8th Circuit Court of Appeals upheld the ruling despite critics who said the sentence was draconian. Later, the sentence stuck despite revelations that she had met with prosecutors on logistics in the case.
In Smith's request for a new judge, defense lawyer Michael K. Lahammer of Cedar Rapids, Iowa, argued that a "reasonable, well-informed person" might question whether Judge Reade had a "personal bias or prejudice" against Smith or in favor of an "any adverse party."
In a failed tactic analogous to the Rubashkin case, Smith's attorney said Reade is married to an attorney - Michael H. Figenshaw - who was a senior partner at the Bradshaw Fowler law firm of Des Moines, Iowa.
Smith's attorney says Bradshaw Law represented Dr. Joan Priestley, a resident of Anchorage, Alaska, a medical doctor who had sued Smith in "several civil suits," involving his handling of her family's investments and related to the Energae LP activities. A retired medical doctor, Priestley is a former investigative news reporter and spent time researching Smith's financial transactions.
"These (Bradshaw Law) attorneys likely possess material information regarding a crucial issue in this case; namely, the level and extent of fraud allegedly perpetrated by Mr. Smith against Dr. Priestley, an alleged 'victim' in the current legal proceeding," Lahammer wrote in the request for the recusal. Lahammer said a Bradshaw Fowler attorney has provided assistance to Priestley in the current case.
"It is undisputed that Dr. Priestley provided significant amounts of documentation to the U.S. Attorney's Office to substantiate a large portion of the current charges against Mr. Smith," Lahammer wrote. "Further, she organized investor meetings with other alleged victims to encourage their participation in not only the civil suits against Mr. Smith but the filing of criminal charges as well."
But Timothy L. Varicek, an assistant U.S. Attorney prosecuting the case, said Bradshaw Fowler Law doesn't represent Priestley in the pending criminal federal case. Further, Reade's spouse was not a partner in the Bradshaw firm at any relevant time, Varicek said. The civil case wasn't related to the current civil case and the spouse had no involvement or financial interest in either.
Varicek added that two other judges in the district already were obliged to recuse themselves for "legitimate reasons," because they already had roles in prosecuting Smith in pending cases.
"Because a judge is presumed to be impartial, a party seeking recusal bears the substantial burden of proving otherwise," Varicek said, adding Smith hadn't done that.
True, Reade's spouse has associated with Bradshaw Law, but only on a limited, "of counsel" basis since Dec. 31, 2010, and wasn't receiving equity fees in 2012.
Varicek said Priestley's connection to Bradshaw Law involved a case called John Harpole et. al. v. Darrell Duane Smith, which was dismissed with prejudice on May 9, 2017. In that case, Bradshaw Fowler Law started out representing Harpole alone, who alleged Smith had abused his position as a broker and investment adviser from 2010 to 2013. Harpole plaintiffs said Smith had drained client investment accounts without their knowledge or consent and used the money to fund Permeate Refining, LLC, an ethanol plant at Hopkinton, Iowa, and other bioenergy companies.
The plaintiffs in the Harpole case sought an injunction prohibiting Smith from transferring stock Energae and I-Lenders. The two companies held stock in Greenbelt Resources Company, a separate, publicly traded company. The suit sought to prevent Smith from representing that he had authority to operate on behalf of those entities and stopping him from accessing their bank accounts.
Priestley initially was not a party to the Harpole lawsuit or named in the original petition, but was added as a plaintiff in February 2015 - four years after Figenshaw left his law firm partnership. Another law firm from Des Moines, remains as a court-ordered receiver for two defunct entities - Energae, LP, and I-Lenders, LLC.