A new twist in Iowa/N.D. biofuels fraud case

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CEDAR RAPIDS, Iowa — A federal judge in Iowa on July 5 refused a biofuels promoter's motion to remove herself in his wire fraud and aggravated identity theft case.

Darrell Duane Smith, of Forest City, Iowa, on June 18 asked that Chief U.S. District Court Judge Linda Rae Reade, recuse herself. Smith initially promised to plead guilty to some of the counts, but then cancelled the plea hearing and notified the court he would file the motion to remove Reade. A new plea hearing is set July 25 at 2 p.m.

Smith, 61, was a primary fund-raiser for companies including Energae L.P., of Clear Lake, Iowa, which had significant ownership in Permeate Refining Inc., an ethanol plant in Hopkinton, Iowa. Smith remains in jail in Linn County, Iowa, for violating earlier pre-trial rules against contacting investors. North Dakotans eventually filed cases against Smith through the Financial Industry Regulatory Authority. Nine FINRA undisclosed money settlements occurred from 2012 to 2014, on claim totals of $4.9 million.

In March 2012, Smith tried in vain to enlist farmers in the Grafton, N.D., area, to raise sugar beets for an ethanol plant. He described an opportunity to invest at least $10,000 in a then-mothballed Grafton corn ethanol plant, to combine with his Energae companies in Iowa and elsewhere. Smith also promoted tax credits for non-corn ethanol production, which were later declared invalid by the state of Iowa.

In Smith's request for a new judge, defense lawyer Michael K. Lahammer of Cedar Rapids, Iowa, argued that a "reasonable, well-informed person" might question whether Judge Reade had a "personal bias or prejudice" against Smith or in favor of an "any adverse party."

In a failed tactic analogous to the Rubashkin case, Smith's attorney said Reade is married to an attorney — Michael H. Figenshaw — who was a senior partner at the Bradshaw Fowler law firm of Des Moines, Iowa.

Smith's attorney says Bradshaw Law represented Dr. Joan Priestley, a resident of Anchorage, Alaska, a medical doctor who had sued Smith in "several civil suits," involving his handling of her family's investments and related to the Energae LP activities. A retired medical doctor, Priestley is a former investigative news reporter and spent time researching Smith's financial transactions.

"These (Bradshaw Law) attorneys likely possess material information regarding a crucial issue in this case; namely, the level and extent of fraud allegedly perpetrated by Mr. Smith against Dr. Priestley, an alleged 'victim' in the current legal proceeding," Lahammer wrote in the request for the recusal. Lahammer said a Bradshaw Fowler attorney has provided assistance to Priestley in the current case.

But Timothy L. Varicek, an assistant U.S. Attorney prosecuting the case, said Bradshaw Fowler Law doesn't represent Priestley in the pending criminal federal case. Further, Reade's spouse was not a partner in the Bradshaw firm at any relevant time, Varicek said. The civil case wasn't related to the current civil case and the spouse had no involvement or financial interest in either.

Varicek added that two other judges in the district already were obliged to recuse themselves for "legitimate reasons," because they already had roles in prosecuting Smith in pending cases.

"Because a judge is presumed to be impartial, a party seeking recusal bears the substantial burden of proving otherwise," Varicek said, adding Smith hadn't done that.