Gearhart’s casino – the final gamble

December 10, 2010

Kelly Gearhart

(Editor’s note: This is the third in a four part series about the story of North County developer Kelly Gearhart and his political allies. Part one is Fraud, arson and betrayal. Part two is Gearhart’s control of Atascadero.)


Amidst assurances that then President George W. Bush was poised to sign off on the first step towards the development of an Indian owned casino in Paso Robles, the Salinan Indian Tribal Council entered into an agreement with four venture capitalists who went by the name of PMA.

North County developer Kelly Gearhart was one of the members of PMA, along with attorney Grigger Jones, Chris Molina and Dan Phillips, to sign a contract with the Salinan Tribe of San Luis Obispo and Monterey counties to fast track the tribe’s application for federal recognition with the goal of eventually building a large Indian gambling casino on the northeast side of Paso Robles.

Marion Warner, Gearhart’s common-law stepmother of 35 years, told CalCoastNews that Gearhart had boasted of his master plan for financial freedom. He planned to build his empire on borrowed money stashing funds, properties and jewels until the perfect time to file bankruptcy.

That, however, was before PMA, now Pejihota, entered into an agreement with the Salinan Indians. An agreement that Gearhart and his partners projected would bring them earnings of approximately $600 million in profits over the next 50 years, according to Pejihota records recovered from Grigger Jones’ trash can.

However, Gearhart’s reported illicit development activities drew the attentions of authorities, and he was forced to declare bankruptcy before his dream of a North County casino could be realized.

Local investors were bilked out of millions of dollars by Gearhart and hard money lender James Miller of Hurst Financial. Miller lured investors with promises of high-interest loans and assurances that funds would be placed into secured accounts with payments provided to Gearhart as the work progressed. Instead, Miller paid Gearhart in lump sums and the monies were spent without any oversight.

Because of Gearhart’s bankruptcy and other problems with authorities, the U.S. Bankruptcy Court now owns Gearhart’s 25-percent share in the Pejihota’s portion of future casino profits.

So far, the casino project is stalled, in part, because the Salinan Tribe has yet to receive the required recognition from the federal government before it can build a casino.

Gearhart’s bankruptcy – which authorities have determined was fraudulently sought — hasn’t helped Gearhart make-up for profits lost in other illicit schemes.

In some cases, loans were fraudulently re-conveyed allowing Miller and Gearhart to procure additional loans on properties already over-encumbered.

For example, Miller loaned Gearhart $27 million in two loans to develop his Vista Del Hombre project, located near the airport in Paso Robles in an area slated to be the home of the proposed casino. Although Gearhart claimed the property was worth between $100 million and $150 million, a bank appraisal valued the property at $4.5 million.

Miller and Gearhart overvalued the property speculating the proposed casino would drive up values and the casino profits would eventually cover any shortfalls.

Molina, one of four men who told the tribe they could secure federal recognition, boasted his group had a politician poised to fast-track their plans. Without a member of Congress or a U.S. president pushing for approval, the procedures required to procure federal recognition for an Indian tribe usually takes approximately 20 years.

Although no federal official is publicly linked to the project, Molina, who is also a tribal member, used former President Bush’s name in ballyhooing the project before the former president left office.

In 1993, the Salinan Tribe first petitioned the U.S. Department of the Interior for federal recognition. Without federal recognition, federal laws prohibit tribes from owning and running an Indian gaming casino or receiving federal funds for health centers and education.

Molina approached the tribal council in early 2003 with assurances that PMA could “fast track” its plans for recognition, but they would have to sign a confidentiality agreement that not even the tribe’s attorney would be permitted to read before they could hear the PMA proposal.

Molina said that the tribe’s legal firm at the time, Sacramento-based Monteau & Peebles, was “politically correct under the Clinton administration,” but was incorrect under the Bush administration, according to tribal confidential documents provided to CalCoastNews by Tribal members.

During a heated debate, all but two of the Tribal Council members agreed to sign the confidentiality agreement without having their attorney review the documents. The two dissenters elected instead to resign their leadership positions.

In March 2003, Molina introduced Tom Tellefsen and attorney Jerry Levine to the tribal council as two men who could shorten the timeline for federal recognition from 20 or more years to a few months because of their ties to the Bush administration.

Tellefsen and Meg Whitman were former Massachusetts Gov. Mitt Romney’s national finance co-chairs during his 2008 presidential run. Levine is a business and litigation attorney with the Los Angeles based Holland & Knight law firm.

“Mr. Tom Tellefsen is exactly who he says he is, and is in the position to compress the timeline for completion of the task,” according to tribal confidential documents.

“The law firm that has been chosen for us is not only one of the largest in the world, but it is politically aligned with the current administration.

“Phil Hogan was Jerry Levine’s partner until the appointment to the National Indian Gaming Commission by President Bush; Tom Tellefson is a close friend of George W. Bush.”

Molina assured the tribal council that Levine was there to represent the tribe and not PMA, even though PMA would cover all attorney fees, according to the minutes of a March, 2003 council meeting. It was an assurance the tribal leaders said he failed to follow through on.

Within the next few months, Levine met with the partners of PMA several times behind the backs of the tribal council. Levine would later inform the council that Molina had said that tribal council members were aware of their meetings, according to the Tribes’ Molina File.

Molina continued to deny that either he or his partners had spoken to Levine.

“We haven’t spoken to him (Levine) or had any contact with him either,” Molina said at a June 4, 2003 tribal council meeting.

At the same meeting, tribal council members Gary Macagni and Dan Phillips told Molina that they were canceling their agreement to obtain federal recognition through PMA.

“By not telling us about the meetings and by intentionally not telling us when we questioned you shows dishonesty on your part,” Macagni said to Molina, according to transcripts of the meeting.

In October, 2003, PMA changed its name to Pejihota Consultants LLC and had Joe Diehl of the San Luis Obispo law firm of Diehl and Rodewald file a lawsuit against the Salinan Tribe, claiming fraud, breach of contract, and intentional misrepresentation for canceling their agreement to give Gearhart, Molina, Jones and Phillips a cut of future casino revenue in exchange for helping the tribe receiving federally recognized. The suit asked the tribe to return $20,000 in expenses as well as $2.5 million for lost revenue to Pejihota.

The tribe later agreed to reenter into an agreement with Pejihota Consultants LLC.

Typically, an interested party can pull up a lawsuit filed in this county by typing the names of the parties into the civil court computer.

In an apparent attempt to keep their venture cloaked in secrecy, the lawsuit was somehow filed in a way that it cannot be retrieved by typing in the name of the plaintiff, Pejihota Consultants LLC or the name of the defendant – Salinian Indian Tribe into court computers.

In another apparent attempt to keep their venture under the radar, the group has changed their name and transferred their LLC filing at least six times during the past decade. CalCoastNews discovered these transfers, name changes and secret filings during a multi-state search of LLC filings.

The LLC members expected to reap 40 percent of all gaming proceeds for a period of seven years with an option to extend for an additional seven years. For all other developments, the LLC members were expected to receive 50 percent of proceeds for 25 years with a 25 year extension option, according to the business plan of the Salinan Tribe and PeJiHoTa LLC.

After several years of failing to receive federal recognition through presidential approval, Gearhart began flying his jet to Sacramento in an attempt to get state legislators to help expedite federal recognition.

In 2008, Gearhart’s empire was crumbling. He stopped making loan payments and federal and state investigators had mounted investigation into charges of organized crime against Gearhart and a handful of his associates. In October of that year, he signed his interest in Pejihota over to his partners Jones, Molina and Phillips.

In February, 2009, Gearhart, formerly Atascadero’s Citizen of the Year, filed for Chapter 7 bankruptcy protection in Ohio, claiming $6.5 million in estimated assets and $45.1 million in estimated debts. Gearhart failed to mention his involvement in the Pejihota LLC in his bankruptcy filing as required by law.

In June, 2009, Ohio Federal Bankruptcy Trustee Harold A. Corzin filed a fraud complaint against Jones, Molina, Phillips and the group’s Pejihota LLC for allegedly hiding assets for Gearhart with the “intent to hinder, delay, or defraud creditors.”

Responding to the trustee’s filing, the defendants denied allegations that they intentionally caused damages to the creditors of the Gearhart bankruptcy. The group stated that its business venture “had no value” at the time Gearhart resigned as a member of Pejihota LLC, according the defendants joint answer to the complaint filed.

In July, 2010, Ohio Bankruptcy Court Judge Marilyn Shea Stonum ordered Jones, Molina and Phillips to pay the bankruptcy trustees $20,000 to cover their costs of investigating Pejihota, to provide the trustees one fourth ownership in Pejihota with the right to buy back the trustee’s interest in the project by reimbursing Gearhart’s investment into Pejihota, $646,190.

The court noted there was the likelihood that Pejihota and the Salinan Indian Tribe would eventually succeed at gaining federal recognition for the tribe.

Pejihota and the Salinan Tribe’s plans call for building a 250,000-square-foot gaming casino, homes for about 400 people, a school, a hospital and a “green” energy plant on 2,500 areas they plan to purchase in either North San Luis Obispo County or South Monterey Counts, according to their business plan.

Gearhart’s attractions to the gambling industry can be traced to his teen years, when his father owned a bingo parlor in Ohio.

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After reading some of the posts here about Indian Tribes getting Federal recognition, assuming there’s truth to it, a few things stand out to me. This is a corrupt system being ran and controlled by sleazy crooks. It actually makes me sympathetic toward any tribe trying to be recognized. Incredibly you have to pay these Mafioso to be recognized, pay them well, and over a long period of time. What choice would any tribe have but to build a Casino by the time they get recognized. Recognition of an Indian Tribe should be a simple matter of showing proof of the tribes heritage. Who are we, that drove them off their lands and onto reservations to be making this so difficult? If your planning on dealing with this group of Patriots, I suggest you don’t send your church choir to do the negotiating!!!

There is no Indian casino or recognition for Salinan tribe as far as being able to open a casino It is not going to happen in the next 10 years If you lost money with Gearhart and Jones and Phillips and Molina I would suggest filing a law suit The attorneys handling the Bankrupcy in Ohio just want to wash their hannds of this And telling thje investors eventually they will get their money back from the future earnings of a non existent casino is there only way out

Wake up! No Casino No paybacks to the investors

As long as people continue to look away, DA Louise Comar, others then justice will never be served.

There are however alternatives to justice and the courts.