DUMPSTER CHRONICLES: Lender Hurst in a can

September 9, 2008



Atascadero lender Hurst Financial Corp. (HFC) is fielding accusations of fraud from a second state agency, but the company’s bigger problem might already be in the bag.

Hurst’s president, James Hurst Miller Jr., and his daughter, HFC employee Courtney Lee Brard, are similarly accused by both the departments of Real Estate and Corporations, and already have had their permits to operate either suspended, revoked or threatened.

But in the end, eight bags of trash might weigh in more heavily than mere allegations.

The state agencies’ actions against HFC follow an avalanche of complaints from worried investors and a continuing series of revealing articles by UncoveredSLO about questionable business transactions between HFC and prominent North County developer Kelly Gearhart.

In what might have been an effort to avoid using traceable e-mails to communicate, Miller and Brard often traded data, ideas, comments and musings in handwritten notes to one another

These often would end up intact in the office trash, taken to the curb by an HFC employee every Monday evening for pickup the following morning.

Before pickup could occur, however, one investor, worried about the manner in which Miller was conducting business and disbursing development funds, began to retrieve every piece of paper that appeared to be pertinent to HFC’s daily business activities. The investor then would bag and save the resulting pile.

In about six months, the investor had collected materials that filled eight paper grocery bags.

In an age when identity theft and related crimes are commonplace, often made possible by victims’ careless disposal of vital personal information, it was nearly inconceivable that such a treasure trove of puzzle pieces and potentially incriminating information would be so cavalierly discarded.

But there it was, a virtually unending trail of notes, envelopes, Post-It scribbling, office bills, odd doodles, many replete with intriguing commentary and spilled coffee stains.

The investor would subsequently report that the bags were filled with no expectation that they would contain any information that might be needed.

“I just thought it might help in the future,” the investor said when turning the bags over to UncovererSLO.

In an action filed August 27, the state Department of Real Estate’s deputy commissioner, Charles W. Koenig, accused Miller and Brard of “working with or under the direction of Gearhart” to pay off two of 16 investors in the so-called Montecito Plaza II on El Camino Real in Atascadero. The accusations filed by the state allege that Miller did not notify any investors in the project except the two who were paid, Marian Frances Warkentin and Gary Luttrell.

The history of the Tastee Freeze property provides insight into the inner workings of HFC’s relationship with Gearhart.

In 2004, the first of four loans was taken out on the project for $500,000 through HFC to Morro Road homes, a Gearhart LLC. Gearhart then split the property into three different parcels.

In 2006, Miller doled out an additional $1.5 million loan on one parcel that was shortly split into three lots. Gearhart eventually placed the K-Man Cycle and Run lot into escrow, and subsequently developed the Tastee Freeze project under Morro Roads Homes. Miller then filed a reconveyance, paying off only two of the loan’s investors without the consent of the remaining 14. (It is a crime to reconvey a lot and not alert all the investors.)

Miller again solicited investors to fund construction on a third lot located between the Tastee Freeze site and bike shop, to the tune of $975,000. A few months later, Gearhart received a private loan for $600,000 from Marion Louise Warner.

The property currently is an empty lot, even though — according to a First American Title report — two construction companies placed liens for non-payment on the property in mid-2008.

According to a pencil-written document from the dumpster trove, with handwriting appearing to match known samples from Miller, HFC planned to “partially reconvey Tastee Freeze lot and put additional loan on lot.”

Documents also outline the partial reconveyance of a portion of Gearhart’s Vista Del Hombre project in Paso Robles, in what was described as an attempt allow Gearhart to procure a $1.5 million loan from Heritage Oaks Bank:

“Jay partially reconveyed some VDH lots to Kelly in January in hopes he would obtain a loan through Heritage Oaks Bank for paying off investors,” one particular note read. “DA [district attorney] is now questioning DRE [Department of Real Estate] about the reconveyance Jay did due to investor complaints. FRAUD. Still have not received anything from Kelly. We think he is stalling.”

However, according to the dumpster data, Gearhart did not follow through with disbursing loan proceeds loan to pay investors’ interest. Miller then started hatching plans to throw the blame on developers… and then “possibly close doors….”

“Should we propose to join with investors to go against borrower [Gearhart],” reads one document. “With no income and no solutions to this mess, when do we ultimately close our doors or what is left of our options? At what point do we throw the towel in and turn over to a receiver?”

More than 1,200 investors, primarily seniors, have invested nearly $100 million with Miller for making loans. According to the DRE, Miller failed in his contractual agreement to protect investors by funding projects only as work was completed, with progressive payments. Instead, he paid Gearhart in lump sums “without any monitoring of the construction.”

Nevertheless, in some cases, Miller paid from one construction account to pay interest to a variety of other investors for previous loans for unrelated projects. As additional investment money came into the funds, additional interest payments were made by Miller to, among others, developers on HFC-projects like David Graves, Royce Eddings, and Gearhart himself, on many different projects.

Those payment procedures often came close to depleting the funds. Reports dated as far back as 2004 show Miller had begun his Ponzi-like scheme long before the beginning of the decline in the real estate market.

This week, the Phoenix Recovery Group — working on behalf of a group of investors wanting to take over the property — plans to file a judicial complaint against Gearhart alleging he borrowed funds and failed to pay investors.

That action will add to problems already plaguing HFC, Miller and Brard.


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Member Opinions:

By: insider on 9/10/08

Apparently Brenler has an independent PI business. If some of the investors from Estate and Hurst/Gearhart hired him you might get some action from the DA. Just a thought. He might actually be good at that.

By: Cindy on 9/10/08

To TheWeighmaster,

I second that one but I don't know if it's so good. He's already started his sliming. He turns everything into Brennler, Beraud and WalMart.

By: TheWeighmaster on 9/10/08

To Insider:

Hey it's good to see the 2nd grader back on the playground. Grow up Dude!

By: insider on 9/10/08

Gearhart should and will hopefully get his, however the acceleration of problems in Atascadero are the direct responsibility of "Smokey the Bear" Brenler conspicuously absent from last nights city council and his cohort Ellen "the turtle" Bereau. The city attorney and the City Clerk repeatedly told her that the City could not show preference in any way on the Oppose WalMart initiative yet she continually pushed to have the City finance a public promotion of it. Even though the attorney stated it would likely bring law suits as it was questionable as to whether it was legal. The meeting was considerably calmer with Brenler absent. Maybe he took my suggestion and stepped down. What a piece of cr@p.

By: TheWeighmaster on 9/10/08

Sounds like a bag o' damning evidence.

When all is said and done I hope the people of this county, particularly those in Atascadero will raise heck.

The cozy relationship between Gearhart and some of the City Council and Planning Commissioners as well as City Manager and Chamber of Commerce is frightening.

While people (elderly, sub contractors, etc) were poised to lose their shorts he is bestowed the honor of "Man of the Year".

The obvious question is when all is said and done will the Chamber recind the award?

By: CarolAnnRiley on 9/10/08

To Paso Guy

I think that giving the materials from the dumpster to U-Slo was a way of getting it out into the press. Since they have "evidence" in their possession I have no doubt that they will hand over that evidence to the proper authorities. The source is an investor who obtained the trash legally. I don't see why that person would have any reason to deny that they are the ones who procured the trash or want anonymity if this evidence is used in trial. Just my opinion.

By: Paso_Guy on 9/10/08

“I just thought it might help in the future,” the investor said when turning the bags over to UncovererSLO

Why not turn this over to DA investigators as well? Will this now prevent that from happening as Cal Coast can claim "source privelige"?

Will Cal Coast hand over the evidence when and if there is a court case or will it claim protection of their sources?

Just wondering

By: Cindy on 9/9/08

Great Story, The dumpster diving is just too funny. We've all heard of things like people going through trash but I don't think anyone ever thinks its actually going to happen to them! The diver must have been one very angry investor. I can't get over the things they put in writing rather than use e-mails to send notes and brainstorm. This is real investigative reporting at it's best. Looking forward to the next story in the series.

By: CarolAnnRiley on 9/9/08

WOW, This is such an intriguing story. I can't get over the trash bags and all the notes they dumped without shredding them. I agree with Rose, there are some very shaken Hurst comrades tonight. Have we heard anything about all the money that went out to Las Vegas? Was it gambled away?

I hope that these investors can realize a return of most of their lost funds. A trail is starting to emerge and the money is someplace. I'll be watching for the next "sequel". Watch else did that trash say? LOL

By: whoisjohngalt on 9/9/08

This is what investigative reporting is all about. GREAT story!

Kudos to the "dumpster diver".

By: Rose on 9/9/08

Great reporting! I'll bet there are some frightened people in our county connected with Lender Hurst who are pouring themselves a 2nd and 3rd martini tonight… "Were they stupid enough to make notes of our conversation? Did they write down my suggestion for taking the heat off themselves?" Oh, the tangled web we weave….

Can't wait for the next report in the series. You guys are on top!

By: Newsome on 9/9/08

Holy smokes. You guys are on FIRE. Keep up the good work, UncSLO!