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Mikkel Pates, Agweek, Published April 23 2013

Iowa suspends license of man who touted investment in Grafton plant

GRAFTON, N.D. — An Iowa man who a year ago spoke to Red River Valley farmers about supplying sugar beets for an ethanol plant here to has been ordered by Iowa officials to cease and desist from soliciting investments for Energae LP, the company that was going to buy the plant.

The officials accuse Darrell Duane Smith of improper handling of securities sales, some of which involved Energae, and have suspended Iowa insurance license.

At a March 2012 meeting in Grafton, Smith told area farmers that investing a minimum of $10,000 in the company would give them the right to deliver a minimum of 20 acres of beets for processing to the then-mothballed Alchem plant.

Later, he said he wasn’t seeking investments. If commitments came through, he said investors would be part of Energae, which also owned part of a small ethanol plant and a power plant in Iowa.

The deal never materialized and the Alchem plant is now being demolished.

Officials with the Iowa Insurance Division said that, unless Smith requests a hearing within 30 days and successfully challenges the order, he’ll be assessed a $10,000 civil penalty for acting as an unregistered securities agent.

Contacted by phone, Smith said he “of course” will challenge the rulings. “I’ve put my whole life into making this work,” he said. “There are just a few things left to do. People get antsy.” He said he’s done “everything to try and help make everything work.”

Smith’s attorney, Kathryn Barnhill of West Des Moines, Iowa, said there has been “no violations of securities laws” and that the company is “on the verge of becoming very successful and very profitable.”

Smith is a resident of Forest City, Iowa.

Money transfers

According to the Insurance Division, Smith had invested several clients’ money without their consent.

In August, he sent several emails to a client identified only as “L.L.” informing him Energae qualified for tax credits. He verbally promised to invest $25,000 of the client’s money, which would bring $40,000 in tax credits over 20 years. L.L. authorized the fund transfers in early October, but discovered mid-month that $50,000 had been withdrawn in three separate draws. Two of those draws happened in August, before the authorization was made.

The signatures used in those draws, L.L. alleged, were forged and he believed Smith was responsible. When confronted in February, L.L. said Smith said the extra $25,000 was a mistake and he would restore it in March. Then Smith delivered “a tirade of anger and intimidation accusing L.L. of greed and selfishness,” the Insurance Division said.

As of April 4, Smith still hadn’t returned the $25,000 to L.L., according to the agency.

Another Iowa resident, “A.L.” had invested $387,500 in an individual retirement account in 2008. The Insurance Division alleged that Smith asked A.L. in 2009 to withdraw $40,000 from the account to invest in Energae. A.L. found Smith had withdrawn $10,000 more than discussed.

Smith also allegedly made other unauthorized withdrawals totaling $90,000 to invest in Interested Investors Trust/I-Lenders, which shares an office address with Energae in Cedar Lake, Iowa.

A.L. told regulators she had no information on what I-Lenders does or its financial condition. “To her knowledge, there is no value to this investment,” the Insurance Division said.

In another case, Met Life representatives told Iowa regulators April 3 that Smith had made an unauthorized transaction for an Alaska resident, “B.B.,” for “approximately $1.2 million in disbursements made to entities controlled or affiliated with Smith,” the Insurance Division said. “Bank records show at least some monies deposited from Met Life into an account(s) believed to be controlled by Smith.” it adds.

The agency said multiple Iowa consumers, “some of whom were insurance clients of Smith’s,” were contacted by Smith to make investments in Energae.

Since 2008, Smith has transferred money out of insurance client accounts “many times without their knowledge to invest in Energae and/or ILenders” and some clients have “never received documentation of ownership of their investment,” the agency said. Officials say they think Smith has converted the money for his own personal use.

Smith has, in recent months, traveled to North Dakota to offer tax credits to people who earlier had invested in Algae Energae, a predecessor name for Energae. One person said he purchased credits in January.