DUMPSTER CHRONICLES: Law, disorder, and the DA

September 27, 2008

(Editors’ note: An investor worried about his stake in Hurst Financial Corp. (HFC) tirelessly collected over several months a truckload of bags containing handwritten documents from HFC principal James Hurst Miller and employees of his imploding lending company. The investor then shared that trash with us. Part One of the Dumpster Chronicles revealed panicked principals of HFC writing notes instead of e-mails, then disposing of the notes, coffee-stained but otherwise undefiled.)



A disengaged and reticent district attorney failed to investigate numerous complaints targeting fraudulent hard money lenders and big-name developers during the past 18 months, even as new and unsuspecting investors were being fleeced of their life savings.

Personal, political, and family connections may have had significant influence on decisions made by key members of San Luis Obispo County District Attorney Gerald Shea’s office, according to numerous unhappy county residents and a lot of corroborating trash.

A spokesman for Shea took issue with allegations of prosecutorial inactivity.

“That is absolutely not true,” said district attorney investigator John Tooley. “We are not an investigation agency.”

Tooley then revealed for the first time that local prosecutors are finally following a criminal trail: “We just recently got a criminal referral [from a state investigative agency]. But the Department of Real Estate (DRE) has not provided everything we’ve asked for.” Tooley would not elaborate, citing “an ongoing investigation.”

Those handwritten notes snatched from HFC’s dumpster provide bits of evidence, however, that the hard money lender and at least some of his associates remained unconcerned about scrutiny from the district attorney as recently as July.

Investors and others interviewed for this series charge that friends and family of district attorney employees; specific, connected hard money lenders; and North County developer Kelly Gearhart have received compensation for their losses ahead of other investors.

More than 4,000 investors, primarily seniors, have invested more than $600 million with four area lenders currently under investigation for alleged fraudulent activities by state and federal agencies including the FBI, the California departments of Real Estate and Corporations and, apparently, the county district attorney.

Shea’s office recently asked the county board of supervisors to provide funds for a real estate fraud prosecution unit. In that plea, Shea acknowledged that the county’s “four cases alone may total in excess of a hundred victims.”

Professionals working to unravel the mysterious path of investor monies said that local investors who counted on these hard money lending institutions to manage and grow their savings will be lucky to recover pennies on the dollar.

Last month, the DRE suspended HFC’s license and filed accusations of fraud alleging that Miller paid off some investors while failing to inform and receive consent from other investors on specific loans, as required by law.

Documents and notes from HFC’s trash appear to confirm investor suspicions that Miller apparently made whole those who threw a public fuss, as well as those connected to officials, lenders, and builders.

Yvonne Zamora, an investor with HFC, took matters into her own hands when interest payments on her loans ceased last fall. After checking with local law enforcement officials, Zamora began marching back and forth in front of Hurst’s Atascadero office, carrying a sign that read, “Hurst is the worst! Don’t Invest!” on one side and “Hurst is cursed! Don’t invest!” on the reverse.

In less than an hour, Miller agreed to return Zamora’s investment. She was paid in full the following day.

According to notes recovered from their Dumpster, HFC principles were wondering in July if they should worry about district attorney involvement:

“Should we be concerned the DA could potentially get involved?” a Hurst principle asked in one dumpster missive. “Put on payoff list. Talk to court. Replace Pete Evans money,” are phrases written on Post-It notes found in the trash.

On May 1, HFC made an unsolicited offer to pay off Pete Evans, an investor who regularly raised hell with Miller about an apparent lack of supervision of his investment. But HFC attorney Jeff Benice quashed that effort, sending a letter to Evans four days later retracting the offer: “Hurst cannot make a preferential distribution to one investor and disregard other investors.”

Nevertheless, there is evidence some investors received payoffs within the last 30 days. For example, investor Mark Blair recently agreed to provide reporters with photographs of Miller dumping boxes of files into a Dumpster. Then, Blair changed his mind.

“I want to stay out of things,” he told a reporter. He then said HFC was transferring property into his name.

Blair said he asked a relative who works in the district attorney’s office if he should accept the transfers, and was told he was lucky to get the offer.

Scraps from the Dumpster appear to support Blair’s claim, showing numerous accounts of grant deeds exchanged for owed interest and principal. “Lender terminating interest for grant deed,” reads one preliminary change of ownership report on May 28, listing HFC as the seller/transferor, and Blair as the buyer/transferee.

As recently as September 10, HFC recorded assignments of deed of trust into Blair’s name with the SLO County Clerk/Recorder.

In June 2007, Atascadero Mayor Mike Brennler asked the district attorney to determine if Gearhart’s violations of local and state building codes were criminal in nature.

Several weeks later, District Attorney Chief Investigator William Hanley told Brennler that prosecutors were declining to further probe Gearhart as his “conduct does not rise to the level of criminal wrongdoing.”

Hanley did not remove himself from the investigation despite his family’s ties to Gearhart. Del Robasciotti, Gearhart’s close friend and Hanley’s brother-in-law, has worked with Gearhart for years. Hanley lives in a house located near that of his father-in-law, Melvyn Robasciotti.

The elder Robasciotti asked Gearhart to rebuild his home after a fire. Gearhart built a new house next to a hillside above a creek. The construction caused a small landslide into a stream with a healthy population of native fish. Three declarations were filed by the Department of Fish and Game regarding the unmitigated damage, and two were filed by the County Planning Department. No further action was taken.

According to records of a subsequent court fight, Hanley and Melvyn Robasciotti trespassed on a neighbor’s property to enlarge and line a small pond in the center of the creek hoping to obtain free water for their lawns. Judge James D. Reams decided Hanley and Robasciotto had established squatter’s rights and awarded the pair two access points to their neighbor’s property.

Del Robasciotti invested in HFC, too; his name is the only one found circled in portions of the Dumpster treasures.

Sources claim Kelly made a partial payoff to Del Robasciotti just last week, with $10,000 in cash, a backhoe, and an array of tools. Del Robasciotti, who did concrete work for Gearhart, confirmed the payment, but he said it was not for work done or related to money he had invested with HFC.

“It was payback for a personal loan I made to Kelly,” Del Robasciotti said. He declined to confirm or deny the exact amount of cash that exchanged hands.

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Member Opinions:

By: Hangingonathread on 10/1/08

You are all obviously quite a bit more educated than me when it comes to the legalities of all of this. I am just a lowly construction worker and read this article from a "need to go to work everyday" point of view.

I think these criminals need to be ferreted out and punished. It is crooks like these that have made it almost impossible to run a subcontracting business at a profitable level. I feel badly for the 3000+ community members that have been burned. I also however, feel badly for the thousands of workers these investors kept employed by adding on to thier houses and paying reasonable rates for random repairs.

These criminals should have to pay way more than the investors they burned. There should be a assement made to the assets they have accumulated through thier greed to pay back the local communities they are helping to destroy.

I'll go back to my 1983 Ford now. A replacement for the Dodge I can no longer afford.

By: Truthbeknown on 9/30/08

MikeBrennler says: "Prior to meeting with Chief Couch, I conferred with our former City Attorney who agreed with my concern that laws may have been violated and that my suggestion for an independent investigation was not improper."

Is this the same city attorney who was fired for ineptness? Other than making unfounded accusations of city staff, local business persons, and various citizens, what were YOUR accomplishments in two years, Mayor Brennler? How many of your "concerns" have been found to be warranted?

By: WiseGuy on 9/30/08

Thumbs up to Mike Brennler, a guy who has continually done the right thing toward bettering his community, but has had to suffer vicious, unfounded attacks by the very same crooks and scoundrels he has tried to protect his city from.

If more people had followed Brennler's lead, there would be fewer problems in Atascadero today and in the future. Brennler's been on the right track all along. He wasn't given proper appreciation, but, for whatever it might be worth, he certainly is entitled to several "I told you so" moments.

By: hotdog on 9/30/08

Interesting how Fonzi rhymes with Ponzi- the illegal scheme Estate Financial, 21st Century, RPL, Hurst, Gearhart and others allegedly perpetrated on thousands of locals. Atascadero's former Golden Boy, Kelly Gearhart, bought his popularity with ill gotten gains from felonious activities against our fellow citizens. We all look forward to the day the DA stands up and does his job (by allocating the necessary resources to prosecute these local criminals). So far we don't see much going on.

Here is the scene. We have around 3,000 victims, about 1/2 billion dollars stolen by a small group of crooks, maybe 9 months of investigation by one person in the DA's office (the DA has almost 100 employees). Many of the crooks are high flyers, well connected people. If that is buying them any protection we have a big problem. I guess this issue isn't sexy enough for the DA to hustle, I guess those 3,000 people don't matter very much. I guess we have a very lopsided justice system rattling along here.

By: CarolAnnRiley on 9/30/08

I would say that the planning commissioner whose husband was egregiously involved in attempting to recall Mike Brennler was Al Fonzi. I have little doubt that he (Al Fonzi) is the person who approached Mike in an effort to restore Kelly Gearharts credibility while offering an exchange to relieve Mike of all the undue stress that Al and his friends Ray Buban and Mike Jackson were creating at city council meetings, in public forums and in front of every grocery store. Shame on them for asking Mike Brennler to compromise himself and the citizens trust. Shame on them for all the disheavel they created because they wanted control of our City Council. Shame on them for not respecting the vote of “the people”. How dispicable their actions were. Now Al’s wife Roberta wants to replace Mike. If he and George had run again she wouldn’t have stood a chance in hell of winning either seat.

By the way this is some excellent investigative reporting. We "the people" need this kind of effort in journalism. Thank You Karen and Dan.

By: Black_Copter_Pilot on 9/30/08

"the husband of a planning commissioner approached me and suggested that the recall could be made to “go away,”

Mike Brennler: Don't you hate it when people dance around the facts. Why don't uyou just name names and let what happens happen?

Thought you might have noticed the spanking that Fred Strong got when he weighed in. Some folks just don't learn

By: whoisjohngalt on 9/29/08

Good on ya, Mr. Brennler!

By: MikeBrennler on 9/29/08

Having been mentioned in this story I will respond with additional information which may be of interest.

On June 4, 2007 I had met with Atascadero Police John Couch. I provided him with a letter which indicated my concern that Kelly Gearhart may have violated several local and state laws as related to the residential development commonly known as the De Anza Senior Cottages. My concerns included the fact that many of the units had been allowed to be occupied without a final inspection and that corresponding development impact fees had not been paid. I had copied my letter to the City Clerk, the City Attorney and the District Attorney.

When I had first suggested an independent investigation, City Manager Wade McKinney indicated he would rather keep the matter in house. Due to the complexities of the matter and the cities relationship with Mr. Gearhart I believed that it would be far more appropriate to have an independent investigation.

Prior to meeting with Chief Couch, I conferred with our former City Attorney who agreed with my concern that laws may have been violated and that my suggestion for an independent investigation was not improper.

I also had a conversation with the District Attorney explaining my concerns and asking for the appropriate protocol in order to submit the matter to his office. Mr. Shea informed me that my request had to be submitted through my city’s law enforcement agency, specifically the Atascadero Police Department.

After Chief Couch submitted the matter I made several efforts to contact the D. A. Office, as I hoped to provide him some additional insight acquired from my past law enforcement and investigative experience. These particular calls were not returned.

There are public documents which are available concerning this matter in form of

letters and email correspondence between involved parties. Perhaps they can shed some light on the issues.

I think it is worthy to mention that during the effort to recall me from the City Council the husband of a planning commissioner approached me and suggested that the recall could be made to “go away,” provided I made a public apology to Kelly Gearhart for having submitted the matter for investigation. Naturally, I declined this disingenuous and inappropriate suggestion.

As an advocate of good government and transparency, I firmly believe that my request for an independent investigation was both proper and prudent.

As a concluding note I will mention that per my city staff, 11 of the De Anza units and the uncompleted community room have not received a final inspection. I have been assured they are not occupied. Once the final inspection has been completed, development impact fees will be owed in amount of $9,750.00 per unit.

Additionally, it has come to my attention that two (2) bridges which serve the De Anza project did not receive a final inspection in a timely manner. Both bridges were completed in 2005. One bridge received final inspection a couple of months ago. The other bridge has yet to receive a final inspection and fees are owed on this public improvement project. I have asked that this specific matter be addressed at the next council meeting.

Mike Brennler

Mayor, City of Atascadero

By: hotdog on 9/29/08

Keep in mind the vast majority of fraud victims here are senior citizens, some in poor health and in dire need of their hard earned savings stolen by hard money brokers and some evil borrowers. From the June 6, 2006 election info on the SLO DA race (unopposed), our DA’s priorities, if elected, are:

Enhancing the prosecution of financial elder abuse and identity theft crime

Expanding the use of DNA case-related resources

Promoting aggressive and fair criminal prosecutions and assisting victims of crime

You can verify at : http://www.smartvoter.org/2006/06/06/ca/slo/race/

After reading up on these things, someone tell me why the thieves are still walking free, and the lenders are broke. Prompt attention to this matter would have saved many this pain and the crooks would be in jail by now. All this fiddling around is allowing them ample time to hide assets and, perhaps, flee the scene.

By: calvertworthington on 9/29/08

The district attorney(s) has total discretion in filing/not filing criminal complaints dropped on their desks. High profile cases get 'special' attention, and 'sensitive' cases often get unique dispositions.

Paramount in many decisions is the likelihood of a 'win' for the D/A, and/or making someone happy. This could be construed as being determined by who the players are in any investigation.

As far as D/A Investigators actually initiating investigations, I was under the impression that this has and does occur, especially when the jurisdiction involved asks for help, and/or does not have the resources or experience needed for the investigation involved.

The scenario presented on this blog could throw enough chaff into the air, where the matter should be made transparent by an AG review. (Attorney General)

By: InTheKnow on 9/29/08

If writing about how a group of lenders was able to steal millions from area seniors is gotcha journalism, then we need more gotcha journalism.

By: Paso_Guy on 9/29/08

Is this article "gotcha" journalism?

By: JorgeEstrada on 9/29/08

Truth and Justice can be like hot Tortillias and Cheese. Caliente, Caliente, first let cool and then eat them. In this country, the game is called Hot Potatoes.

By: TruthandJustice on 9/29/08

Karen: You have misquoted me and as a result delivered an inaccurate report to your readers. My statement to you was "We are not an initiating investigative agency." The police departments and sheriff department of our county have very capable officers and detectives that conduct the initial and supplemental investigation of reported offenses and send their reports to the District Attorney for review and possible filing. Many times we are ask by law enforcement to assist and in some rare cases, we initiate the investigation at their request. Why would I tell you we don't investigate and at the same time identify myself as an investigator. Also, in regards to the June 2007 issue you brought up regarding Chief D.A. Investigator Bill Hanley and his failure to remove himself from the investigation of municipal code violations alleged against Kelly Gearhart…again facts are not correct. Brennler reported the possible violations of Gearhart failing to pay impact fees of $9,750 per unit upon 42 units he built in Atascadero to then Chief John Couch. Chief Couch reviewed the documents and said that he found no indication of any criminal wrongdoing and in fact he found that 12 out of the 42 units were paid by Gearhart. Out of the $409,500 that Brennler alleged as unpaid, Gearhart owed $292,500 and that was not due until June 8, 2007. The report came to the police on August 31, 2007. The case was then sent to the District Attorney for filing review and rejected by Chief District Attorney Steven Brown. So, you see that this investigation started with the initiating agency who found no violations and was sent to our filing D.A. for review who rejected the case. After passing through two screening reviews, Chief Hanley submitted a letter to Chief Couch that after an initial review and subsequent review "the issue before us is not criminal in nature and thus, not subject to a criminal investigation."

As I told you, this office continues to investigate the reported offenses from the Department of Corporations and Department of Real Estate and will conduct a thorough, accurate and complete investigation. This we owe to the investors that have lost their retirement and investment funds and to those that are being accused.


Get your facts straight and report accurately so that your readers can come to some intelligent conclusions.

John Tooley

Senior D.A. Investigator

San Luis Obispo District Attorney Office

By: TheWeighmaster on 9/28/08

This is a potential indictment of the system. The facts as reported seem credible and I hope representatives of the DA Office will elaborate further to help explain all of this.

Because the stakes are so very high the public deserves some answers, especially those who invested with Hurst and Gearheart.

By: hotdog on 9/28/08

I'm rusty as an old nail! My Spanish is crude, I should have said 'diganos' I believe.

Anyway, I think bloggers should click on 'George' and read his comments-they are very well written and if followed will lead to a more literate and helpful blogsite.

And, of course, Death to all who disagree with me!

By: hotdog on 9/27/08

Bueno Jorge, pero digomos en Engles!

By: JorgeEstrada on 9/27/08

La policia es mi familia, mordida para la drones? Malo, Malo, Malo. Donde estan los federales? Policia y la drones es igual? Es curiosos.

By: ThomasPaine on 9/27/08

I agree. I used to have a grudging respect for the D.A. but the more I hear the more alarmed I have become. Another example of people in power using their power to protect their own.

It would be nice if people could contain their remarks to the issue at hand without being vulgar. Being vulgar has its place at times. But this constant, incoherent and juvenile bashing of the North County is getting old.

I submit that any argument a person may make on this site is exponentially more forceful when stated without undue bias.

It also does not bode well for the area where the person making such distasteful comments comes from. The apple does not fall far from the tree. I believe that such idiotic comments detracts from the conversation and keeps more informed individuals from posting here.

By: hotdog on 9/27/08

Booty Juice, so right on! They surely are an investigative agency and should have looked into all this long ago-and acted for the good of the public. They didn't. I call that criminal neglect. We pay the DA to seek out and prosecute criminals. Looks like he has taken us for a ride like Hurst did. All citizens should be concerned about this, and wonder why.

Thom Paine?

By: Booty_Juice on 9/27/08

Again I ask: Is EVERYONE north of the grade related?

Also, if as John Tooley says the DA is "not an investigation agency”, than why oh why do they have a District Attorney Chief Investigator (William Hanley)?

Thank gawd I declined to invest with them, and others, a couple of years ago! They all struck me as inbred, crooked douche nozzles.