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Iowa farmers ponder what went wrong with investment Tuesday, January 31, 2006
Agri News staff writer
CEDAR RAPIDS, Iowa -- Delaware County farmers Doug Bishop and Doug Schulte were hoping to add value to their corn when they got involved in efforts to build an ethanol plant south of Earlville.
Today, the land purchased to build the Northeast Iowa Ethanol plant is bare, and Schulte, Bishop and other cooperative officials are involved in a prolonged legal battle to recover funds the limited liability company and farmer cooperative raised for the project.
Investors nightmare
Schulte and Bishop's testimony last week in U.S. District Court in Cedar Rapids offers a glimpse of what could best be described as an investor's worst nightmare.
Bishop, a Manchester farmer who raises grain and feeds hogs, was elected president of the board of Northeast Iowa Grain Processors. The project attracted 252 members and raised $2.356 million. They met with bankers, but were having difficulty finding a lender for the $21 million project because the banks required 40 percent equity.
The firm designing their ethanol plant introduced Bishop and other cooperative officials to Dorchester Enterprises, a Canadian investment company. Dorchester proposed taking a block of money and setting it in a protected account. That money would be used to secure a loan.
"It was unconventional financing and it was new to all of us,'' Bishop said.
About this time the co-op formed a limited liability company -- Northeast Iowa Ethanol -- so that non-farmers could invest. North Central Construction and Williams Bio-Energy invested a total of $1.5 million.
Bishop had hoped to start construction in fall 2001 and be producing ethanol in 2002.
Bishop said that if Martin Ubani, Dorchester Enterprises and Global Syndicate International hadn't agreed to the condition that Northeast Iowa Ethanol be allowed to approve all transfers of money, they never would have given permission for money to be transferred.
Dorchester's William Davenport suggested that Martin Ubani, a Nigerian now believed to be living in Munich, Germany, would serve as administrator of the funds in the restricted account. Northeast Iowa Ethanol agreed provided that withdrawals from their account required their approval.
Ubani recruited Jerry Drizin, a Clearwater, Fla., businessman, and Global Syndicate International to help invest the funds. Drizin formed GSI in 2001 for the purpose of investing funds raised by Ubani, said Steven Wandro, attorney for Northeast Iowa Ethanol LLC. Drizin had experience selling real estate and insurance, but wasn't a licensed investment adviser or stockbroker.
No experience
"The officers and directors of Northeast Iowa Ethanol had no experience in dealing with unconventional financing, and as a result they placed great trust and reliance in Ubani and GSI to act in their best interest,'' Wandro said.
Doug Schulte, a Manchester farmer, got involved with the ethanol project and became a board member. In summer 2001, he agreed to serve as project manager. He acted as liaison between Dorchester and the cooperative board.
Schulte said he had no experience with the type of financing Dorchester Enterprises proposed. Like Bishop, he said that without the requirement that Ubani had to get Northeast Iowa Ethanol's permission to take money out of the restricted bank account, he wouldn't have agreed to the proposal.
When the letter of credit Ubani promised didn't arrive, "I knew we'd been had,'' Schulte said.
He tried calling and e-mailing anyone he could think of. They all said they couldn't disclose information because of confidentiality.
"We could never get anything with any teeth in it from anyone,'' Schulte said.
Ubani kept saying "tomorrow everything would be there.''
Cast of characters
A long cast of characters - Dorchester Enterprises' Michelle Arsenault and William Davenport, and Jesse Erwin, Arnie Acosta, Barry Marvel and Jeffrey Hurt -- said the money would be there, and there were always excuses when it wasn't.
"None of it ever happened,'' Schulte said. "$3.8 million was gone. We didn't see one red cent.''
Schulte said "this was with me every minute. It was with me when I slept, when I went to church and when I went to wrestling meets. This has flipped our world upside down."
Dan Waters, the attorney who represented Northeast Iowa Ethanol at the time of these transactions, testified that he tried to communicate with anyone he could when it became clear that the money was missing.
A corporate attorney with a degree in finance, Waters said he'd never seen anything like it.
"They kept saying the money could come, and it never came,'' Waters said. "There were repeated promises." |
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