Biofuels promoter to remain jailed until federal trial, judge orders

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CEDAR RAPIDS, Iowa — A federal judge in Iowa has refused to allow a biofuels promoter out of jail before his trial on fraud charges, saying he is a risk to obstruct justice.

In 2016, Darrell Duane Smith was sentenced to 13 months in jail for failing to a pay employment taxes for biofuels businesses he led. Initially, he was scheduled to leave jail April 28, but federal authorities retained him to face new, more extensive fraud charges.

U.S. attorneys charged him with new offenses before a federal grand jury indicted him, according to information from the clerk of court's office. Details weren't immediately available.

On March 23, 2012, Smith appeared in Grafton, N.D., where he introduced the idea of sugar beet growers investing a minimum of $10,000 in Energae LP Holdings. Smith told farmers his company would reopen the Alchem Ltd. plant that had been shuttered in 2007. Smith said investor/growers would own shares in Energae, which was associated with various biofuels companies.

One was Permeate Refining of Hopkinton, Iowa, which made ethanol from agricultural processing byproducts. Another was BFC Electric, at Cedar Rapids, Iowa, which made electricity from wood waste.

Smith later sold tax credits for renewable fuels that later were judged invalid by the state of Iowa. Three North Dakotans filed cases against Smith with regulatory authorities, attempting to force Energae into receivership, but some settled for undisclosed amounts.

The Rev. Todd Hylden, of Fergus Falls, Minn., who briefly worked as a marketing executive for Energae, left the company because of his concerns about Smith's practices. An attorney in one of the regulatory cases estimated that Smith's enterprises had brought in between $5 million and $10 million in investments.

'Abysmal' record

This past May 3, Chief U.S. District Judge Linda R. Reade in Iowa denied Smith's petition for pretrial release — a choice that Reade said usually is reserved for charges related to flight risks, violence, drug offenses or those involved in cases involving minor victims or guns.

In his petition, Smith's attorney, Michael Lehammer of Cedar Rapids, argued he should be released before the trial in part because of "poor health, including sight loss, back pain and dental problems." Smith, who has lived with his wife in Iowa for 23 years, is a native of Alaska. The government says Smith has "significant financial resources."

On March 31, the FBI filed a criminal complaint against Smith, alleging mail fraud, wire fraud, identity theft and money laundering. Smith had appeared April 26 in front of Reade for an initial appearance on the complaint.

Assistant U.S. Attorney Timothy Vavricek's case featured testimony from FBI Special Agent Scott Irwin, who detailed evidence of Smith removing funds from clients' investment accounts without their knowledge or authorization and depositing them into accounts he controlled for Energae and the operation of Permeate.

Not following orders

In arguing to keep Smith in custody, Irwin said Smith represented his activities to the court when seeking pretrial release in 2016 proceedings involving charges of failing to pay IRS taxes. Smith "attempted to contact individuals whom he was prohibited from contacting, in violation of the court's order," and "contributed to a report for prospective investors, which contained several misrepresentations."

Reade cited Smith's "abysmal" performance in 2016 — failing to contact probation officers and to stay within boundaries — as the most important factor in denying the pretrial release.

Reade quoted the Magistrate Judge Jon S. Scoles in that case, who had the impression that Smith would "say and do anything in order to advance his interests. He does what he wants, when he wants and apparently without ... a lot of regard for court orders."