CEDAR RAPIDS, Iowa -- An Iowa biofuels promoter who came to North Dakota in 2012 and sought investments in factories, including a proposed beets-to-ethanol plant Grafton, N.D., has been accused of violating federal wire fraud, mail fraud, identity theft, racketeering and money laundering statutes, on top of last year's conviction for failing to pay federal employment taxes.
Darrell Duane Smith of Forest City, Iowa, was president and general partner of Energae, an investment company based in Clear Lake, Iowa. Energae was an investor in an ethanol plant called Permeate Refining LLC, of Hopkinton, Iowa.
Smith in 2016 pleaded guilty to federal charges related to failing to pay federal employment taxes and in December was sentenced to 13 months in prison and two years of probation. He is scheduled to be released April 29.
On March 31, 2017 - Smith's 61st birthday - Scott R. Irwin, an FBI Special Agent, filed a criminal complaint, which outlined allegations of mail fraud, wire fraud, aggravated identity theft and money laundering.
A hearing on the case is scheduled April 26 before Judge Linda R. Reade.
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Smith was in Grafton, N.D., in March 2012, soliciting interest in biofuels investments, and saying he was planning on retrofitting the former Alchem Ltd. corn ethanol plant for making wheat and sugar beets into ethanol. The plant was never retrofitted and has since been sold for parts, but Smith acquired funding through numerous investors and transactions involving tax credits. Among other things, he falsely claimed a business relationship with a prominent North Dakota banker.
According to Irwin of the FBI, Smith had solicited funds from many investment clients and put them into Permeate and Energae (also doing business as Black Lion Energy Fund, LP; Black Lion Energae, LP, and Algae Energae, LP). Energae was formed in 2008 to invest in bio-energy companies, with Smith as an original partner.
Smith also controlled accounts in a company called Corporate Gold Benefits of Mason City, Iowa, and solicited investments in another company called I-Lenders, LLC (previously Interested Investors, LLC), also in Mason City.
Meanwhile, Randy Less of Hopkinton, Iowa, in 2008, purchased Permeate and managed it through the middle of 2013. Less sold 49 percent of the Permeate to Energae in 2009.
While promoting those investments, Smith separately was a broker and investment adviser for Multi-Financial Services Corp. (later Cetera Advisors LLC). Smith was "allowed to resign" in March 2012.
Later, a number of customers alleged he'd made investments without authorization, among other things, and filed disputes against him under the authority of the Financial Industry Regulatory Authority. The FINRA plaintiffs settled for undisclosed amounts. In April 2013, the Iowa Insurance Commissioner suspended his insurance license, and in July 2013 he consented to having his securities agent license revoked.
Smith took funds he'd solicited from investment clients to invest in Energae, and thereby to Permeate. "Many of Smith's clients agreed to make such investments, while others did not," the report says. He made unauthorized transfers by using "pre-signed, blank authorization forms or forged his clients' signatures without their authority."
Irwin summarized details of three alleged victims, identified only with initials.
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B.B.
"B.B." from Anchorage, Alaska, was one of Smith's investment clients at MetLife Investors USA Insurance Company. In 2008, MetLife issued B.B. an Individual Retirement Account, arranged by Smith. On about Jan. 11, 2011, Smith caused a $40,000 check in the name of B.B. to be deposited in Smith-controlled accounts, using B.B's forged signature without the client's knowledge or signature.
On Feb. 21, 2013, Smith withdrew an additional $30,000 from the MetLife account to an Algae Energae LP account with Wells Fargo Bank. On about the same date, Smith paid a utility payment, paid off a credit card debt for Permeate and/or Smith. Through March 18, 2013, there were more than $110,000 in unauthorized withdrawals, and the account was paying payroll checks for Permeate employees, among other things.
L.L.
"L.L.," a clergyman who had served a church that Smith attended in Forest City, Iowa, employed Smith as a financial planner after the pastor's retirement in 2006. Smith managed an annuity at Jackson National Life Insurance Co. In 2011, L.L. rolled his church denomination funds into the Jackson National Account. In 2012, Smith told L.L that Energae qualified for "tax credits," through Permeate. L.L. verbally promised to invest $25,000 in Energae in exchange for $40,000 in "certain purported 'tax credits,'" the complaint says.
Instead, prior to October 2012 Smith allegedly made three withdrawals totaling $50,000 - twice what L.L. authorized and all using forged signatures. Again, the funds appear to have gone to Permeate employees. In one case, the bank account had paid Cargill Inc., one of Permeate's suppliers.
Smith told L.L. that the withdrawal was a "mistake" but repeatedly failed to correct it. L.L. filed a complaint with the Iowa Securities Division in March 2013. In April 2013, Smith sent L.L. various checks to satisfy what was owed, as well as a statement that Smith had written for L.L. to sign that would indicate he'd "made a loan to Energae, LP," and that he would drop his complaint. On April 14, 2013, L.L. thanked Smith for the checks but declined to sign documents "falsely stating the money taken from L.L's account was a loan."
C.O.
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"C.O." was an Alaskan veterinarian who moved to Mississippi in 2001. In 2004, Smith helped C.O. create a trust to defer payment of certain capital gains. C.O.'s son was the trustee.
C.O. died in 2012. C.O.'s son, the executor of the estate, subsequently discovered many withdrawals over time from a trust that had at one time been valued at over $1 million. C.O.'s son discovered that his signature as trustee had been forged and that money had moved to bank accounts and through to Permeate suppliers or as payroll. C.O.'s son said he never granted Smith authority to make any withdrawals from the trust. He requested a full accounting from Smith, but never received one.
