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Energae suit in limbo as ND investors seek former insurer's removal

FARGO -- A lawsuit by two North Dakota investors seeking to put an Iowa renewable energy company into receivership is on indefinite hold.

On Aug. 5, Robert Hylden and Darren Sheldon of Fargo asked a Cerro Gordo County district court to appoint a receiver to control Energae LP of Clear Lake, Iowa. Darrell Duane Smith of Forest City, Iowa, who had been active in acquiring investments and loans for the company, this summer was permanently stripped of his insurance and investment licenses in Iowa. Smith also promoted the company for its tax credits, some of which have been used in North Dakota, and in March 2012 promoted a sugar beet-to-ethanol process in Grafton that has since been mothballed.

Alan Rosca, a Cleveland lawyer, who is one of several lawyers working with law firms in New Orleans and Iowa, says an Aug. 27 hearing was canceled Aug 26. He says the suit was technically dismissed at the plaintiffs' request, but "without prejudice," meaning it can be reactivated at any time.

"This is not over," Rosca says.

He says the firm is in negotiations attempting to settle on a solution outside of court. He declined to say if he knows who is operating Energae LP, or what outcome is sought. The initial action asked the court to appoint the receiver or at least freeze all of the company's funds until Smith was "permanently removed." Rosca says the overall strategy is to get someone new running the company. Jon Alexandres is currently listed as the "general partner" for the company.

In the petition, Hylden says he invested $8,000 in Energae or its I-Lenders affiliate. Sheldon invested $39,000, including $7,000 for a "green energy" tax credit. They say a May 20 letter from Energae indicates the company lost money in 2012, 2011 and 2010. Hylden and Sheldon had asked for unspecified compensatory and punitive damages, as well as legal costs.

Separately, the Chapman LLC law firm in Cleveland on July 16 filed claims with the Financial Industry Regulatory Authority against Smith's former securities employer.

The FINRA claim says Denver-based Cetera LLC (formerly Multi-Financial Securities) is "liable for investor losses because it failed to detect and stop Smith's fraudulent and illegal sales of those investments." Johnson says 15 Iowa individuals are demanding a total of more than $1 million in compensation, plus attorney fees and punitive damages. John S. Chapman, of Chapman LLC, says no hearing or trial with three arbitrators has been scheduled, but he hopes one can be scheduled for July under an "accelerated calendar." He says he asked FINRA for an accelerated process in part because of the advanced age of some plaintiffs.