Former Hopkinton Ethanol Plant Executive Charged with Fraud, Aggravated Identity Theft, and Money Laundering
Darrell Smith, age 61, from Forest City, Iowa, has been charged with mail fraud, wire fraud, money laundering, and aggravated identity theft. The charges are contained in a Complaint filed last month in United States District Court in Cedar Rapids. The Complaint follows Smith’s conviction and 13-month prison sentence imposed late last year for payroll tax fraud.
The Complaint alleges Smith was a broker and adviser for several investment firms. After one of the firms allowed Smith to resign in March 2012, a number of customer disputes were filed against Smith alleging misrepresentation, conversion, and purchase of investments without authorization. In 2013, Smith consented to having his securities agent license and insurance producer license in the State of Iowa revoked.
The Complaint specifically alleges that Smith solicited funds from many of his investment clients to be invested in Permeate Refining, LLC, which operated a now-defunct ethanol plant in Hopkinton, Iowa, by having funds transferred to what is now known as Energae, LP. Smith was one of the original general partners of Energae, which was formed in 2008 to invest in different bio-energy companies. Many of Smith’s clients agreed to make such investments, while others did not. The Complaint further alleges that, on a number of occasions, Smith nevertheless caused money to be transferred or checks to be issued via wire and/or mail from his clients’ investment accounts without their knowledge or authorization. Smith deposited the funds in accounts he controlled through Energae and then used those funds for the operation of Permeate and for other purposes. Smith either used pre-signed, blank authorization forms or forged his clients’ signatures without their authority. The Complaint details allegations concerning three of Smith’s clients in 2012 and 2013—an Alaska resident, a Forest City clergyman, and a trust created for a retired veterinarian from Mississippi.
If convicted on all charges, Smith faces a mandatory minimum sentence of two years’ imprisonment, a possible maximum sentence of 72 years’ imprisonment, a $1.25 million fine, $500 in special assessments, and 15 years of supervised release following imprisonment.
Smith appeared on May 1, 2017 in federal court in Cedar Rapids and was held without bond. On May 3, 2017, United States District Judge Linda R. Reade ordered Smith detained pending further proceedings. In a written order, Judge Reade found Smith was “a serious risk” to “obstruct justice or attempt to obstruct justice.” The Court noted that, while on pretrial release in last year’s payroll tax fraud case, Smith had violated a no-contact order, made misrepresentations to the Court, and distributed a report to prospective investors that contained several misrepresentations. The report was a so-called private placement memorandum advertising the sale of as much as $20 million in purported federal tax credits arising out of Permeate Refining, LLC—even though the Hopkinton plant was defunct since 2013—but under the name “Texas Energy and Water, Inc.” and allegedly pursuant to a “Cooperative Research and Development Agreement” with the United States Department of Agriculture. Last year, a USDA official from Ames, Iowa, testified at one of Smith’s detention hearings that a document bearing USDA letterhead that Smith had filed in federal district court was forged, and testimony at this week’s detention hearing revealed that the official had repeatedly instructed Smith to stop using his signature without the USDA official’s permission. The Court found Smith was a continued “financial danger” to the community.
As with any criminal case, a charge is merely an accusation and a defendant is presumed innocent until and unless proven guilty.
The case is being prosecuted by Assistant United States Attorney Tim Vavricek and investigated by the Federal Bureau of Investigation, the United States Postal Service Inspection Service, Internal Revenue Service-Criminal Investigation, and the United States Department of Agriculture, Office of Inspector General.
Court file information at https://ecf.iand.uscourts.gov/cgi-bin/login.pl.
The case file number is 17-mj-111.
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