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.)
SECOND IN A SERIES
By KAREN VELIE and DANIEL BLACKBURN
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.