CEDAR RAPIDS, Iowa - A Forest City, Iowa, biofuels promoter who collected investments from North Dakota farmers in 2012, has pled guilty to charges that he failed to pay the federal government income taxes withheld from employees of an ethanol plant.
Darrell Duane Smith, 60, is a former stockbroker. He was a primary fundraiser for companies including Energae LP 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. He will remain behind bars until his sentencing hearing, which has not been set.
In March 2012, Smith tried in vain to enlist farmers to raise sugar beets. He described an opportunity to invest at least $10,000 in a then-mothballed Grafton, N.D., corn ethanol plant, to combine with his Energae companies. Smith also promoted tax credits for non-corn ethanol production, which were later declared invalid by the state of Iowa.
U.S. Attorney Kevin W. Techau of the Northern District of Iowa and Acting Assistant Attorney General Caroline D. Ciraolo of the Department of Justice Tax Division, on June 22 said Smith pled guilty to charges after being indicted in January 2016 with “multiple counts of willfully failing to collect, truthfully account for and pay federal employment taxes” that were withheld from wages of the employees of Permeate Refining Inc., the ethanol plant.
Smith admitted he failed to account for and pay to the IRS $85,267 in the second quarter of 2012.
Criminal conduct
“Mr. Smith’s attempt to dodge his legal obligation to account for and pay employment taxes did not go unchecked, and he will now be held accountable for his criminal conduct,” Techau said. Ciraolo said the DOJ will vigorously prosecute those who “seek to cheat the U.S. Treasury and gain an unfair advantage over their competitors.”
Smith faces a maximum of five years in prison and “a term of supervised release and monetary penalties.” A trial that had been scheduled July 11 was canceled because guilty plea.
According to court documents, in January 2016, Smith tried to get the U.S. Department of Agriculture’s Agricultural Research Service to release $15 million in new tax credits he could sell. ARS laboratory director at Ames, Iowa, said Smith had prepared proposed documents for government use using unauthorized ARS letterhead and signatures. The ARS then withheld $1.3 million in research funds on a federal-private partnership with Energae because of lack of documentation.
Forced receivership
In July 2012, Smith was forever barred from selling insurance or handling investments in Iowa, because of allegations he had transferred money out of insurance client accounts several times, and in some cases used the money for his own personal use. Smith agreed to the sanctions without admitting guilt. Lawyers separately filed claims against Smith to the Financial Industry Regulatory Authority. The FINRA cases sought nearly $1 million in losses from fraudulent sales.
In 2013, two sets of North Dakota investors received undisclosed financial settlements for dropping their efforts to force Energae into receivership.
On Feb. 23, an investor group led by Joan Priestley, a retired medical doctor from Anchorage, Alaska, successfully forced Energae LP into receivership in Polk County District Court in Des Moines.
Priestley said she personally lost large amounts of money when Smith took funds out of her family’s investment accounts without their approval or knowledge.
A consultant to the chairman of the receivership committee, has tracked company money through a series of banks and accounts. Priestley said the receivership committee has learned that from March 2013 to March 2016, Smith “raised $6.45 million,” during a time when plants in Hopkinton and Cedar Rapids were closed and there was no operation to support.
