Forest City man faces more charges in investment scheme

CEDAR RAPIDS - A Forest City man convicted last year of payroll tax fraud is facing new federal charges for mail fraud, money laundering and other offenses stemming from the same investment scheme.

Darrell Smith, 61, was charged this week with mail fraud, wire fraud, money laundering and aggravated identity theft, a criminal complaint filed in U.S. District Court shows. Smith was convicted last year and sentenced to a 13-month prison term for payroll tax fraud.

During a detention hearing Wednesday, U.S. District Judge Linda Reade ordered Smith to remain in custody pending trial.

The complaint shows 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 him, claiming misrepresentation and purchase of investments without authorization.

In 2013, Smith consented to have his securities agent license and insurance producer license revoked in Iowa.

Smith is accused of soliciting funds from many of his clients to be invested in Permeate Refining LLC, which operated a now-defunct ethanol plant in Hopkinton, by having funds transferred to Energae LP.

Smith was one of the original partners in Energae, which was formed in 2008 to invest in different bioenergy companies, the complaint shows. Many of Smith's clients agreed to make these investments, while others did not.

On numerous occasions, Smith 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, the complaint shows. Smith deposited the funds in accounts he controlled through Energae and then used those funds for the operation of Permeate and for other purposes.

As part of the scheme, Smith either used pre-signed, blank authorization forms or forged his clients' signatures without their authorization. Court documents detail allegations regarding 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.

Reade, in a written ruling on Wednesday, said Smith is a 'serious risk to obstruct justice or attempt to obstruct justice.” She noted that while on pretrial release in the payroll tax fraud case, Smith violated a no-contact order, made misrepresentations to the court and distributed a report to prospective investors that contained several misrepresentations.

Last year, a U.S. Department of Agriculture official from Ames testified at one of Smith's detention hearings that a document with a USDA letterhead that Smith filed in federal district court was forged.

The USDA official had repeatedly told Smith to stop using his signature, according to testimony during Wednesday's hearing.  

Reade in the ruling said Smith continued to be a 'financial danger” to the community.

If convicted on all charges, Smith faces a mandatory sentence of two years and possibly up to 72 years in federal prison. He would also face a fine of up to $1.25 million.­

l Comments: (319) 398-8318; trish.mehaffey@thegazette.com