Forbes is engaging in some hard-hitting investigating of various companies’ finances.

Their latest article considers the alleged troubled finances of Earth Biofuels, a small Dallas-based outfit trying to build a national chain of filling stations dispensing biodiesel. The company took on country-western singer Willie Nelson as a director when it licensed his name for “BioWillie®”, the brand under which the biodiesel, made mainly from U.S. soybeans, is marketed.

According to the article, Willie gets a royalty of $0.01 for every gallon sold. Meanwhile, the company (like all producers of biodiesel from agricultural products) benefits from a federal subsidy of $1.00 for every gallon sold.

Here’s a flavor of the story:

If you care to find them, 18 pages into Earth’s financials are insider transactions, including $16,000 a month in rent for a truck stop and convenience store in Mississippi owned by director Blackwell, a series of trades between Earth Biodiesel and Apollo and a $160,000 investment in Blue Wireless, a penny stock venture McLaughlin controls. McLaughlin insists all transactions have been fair to Earth.

The Forbes article claims also that the company’s Chief Executive, Dennis G. McLaughlin III, has what it calls a “colorful background”:

He presided over the $100 million bankruptcy of the company he formed in 1993, Aurora Natural Gas. Duke Energy Trading sued him for fraud, saying he used shell companies to double-bill Duke to the tune of $26 million. Duke ultimately settled and gave McLaughlin a release. McLaughlin blames the bankruptcy on one of his employees and on Duke itself, for inflating gas prices in late 2000; as for his not disclosing it in Earth’s SEC filings, he says he has “never been employed by a company when it filed [for bankruptcy].” Right. According to Earth’s most recent 10-K, he was Aurora’s chief from 1993 to 2001, the year it filed for bankruptcy.

To be fair, I should mention that Earth Biofuels has subsequently issued a reply alleging numerous errors in the Forbes article.

So here’s a prediction for the coming year: There will be many more such stories in 2007, as reporters start to pick up the scent of dodgy companies set up to cash in quickly on the biofuel bonanza.