Kelly Gearhart: Fraud, arson and betrayal

November 18, 2010

Kelly Gearhart

(Editor’s note: This is the first in a four part series about the story of North County developer Kelly Gearhart and his political allies.)


Amid a federal investigation into racketeering, money laundering and mail fraud, developer Kelly Gearhart’s stepmother claims her notorious stepson’s illicit activities also included forgery, bribing public officials and arson.

The latter exploit was one that helped fund Gearhart’s transition from being a prison guard to become one of San Luis Obispo County’s most prolific builders.

Marion Warner, Gearhart’s common-law stepmother of 35 years, said Gearhart’s father gave him a building in 1985 that the younger Gearhart held onto for a year before asking his father to hire an arsonist in order to collect on the structure’s insurance.

The fire left 16 people homeless, injured four firefighters, destroyed two apartment buildings and damaged three additional structures, according to The Athens Messenger, a newspaper in Ohio. Firefighters from five cities fought the flames, which authorities said was set by an unknown arsonist.

After being silent through much of her stepson’s publicized financial troubles, Warner agreed to speak for the record in a series of interviews with CalCoastNews about Gearhart.

In the interviews, which took place over several weeks, Warner talked about her view of the rise and fall of Gearhart, Atascadero Chamber’s former Citizen of the Year.

Marion Warner, John Gearhart, Kelly Gearhart, Tamara Lowe, Doug Gearhart and Brenda Grenough

On his 18th birthday, she said Gearhart’s father gave him the family’s traditional gift for a man coming of age: a box of condoms. A few days later, John Gearhart and Warner left Atascadero for Ohio.

At the time, Kelly worked at a Scolari’s market in Atascadero. He put himself through the police academy and, after graduation, worked as a prison guard at the California Men’s Colony near San Luis Obispo.

Not long after he started his five-year stint as a prison guard, he began doing construction jobs on the side.

“He started out honest — building houses for guys at the prison,” Warner said.

While Gearhart was in his mid 20s and still working as a prison guard, his father suffered a massive heart attack and decided to move back to San Luis Obispo County, but not before transferring the small three-unit apartment building he owned in Ohio into his son’s name.

Gearhart owned the property for about a year before asking his father to hire an arsonist to follow through on their plan to collect on the insurance, Warner said.

On Oct. 9, 1986, authorities said an unidentified arsonist started the fire in an upstairs apartment in Gearhart’s building at 22 Hocking St. in Nelsonville, Ohio. A pair of tenants moved from the apartment building the day before the fire, leaving the three-unit building vacant, according to The Messenger.

The fire spread to a second apartment and business complex leaving 16 people homeless, many escaping with just the clothes on their backs. Three additional buildings – the WAIS radio station building, the Nelsonville TV cable office and a residence – sustained smoke and water damage.

Four firefighters suffered smoke inhalation, one seriously, according to the Messenger. Volunteer firefighter Pat Bullock was admitted to Doctors Hospital where he remained for three days in the intensive-care unit.

According to the Athens County Tax Assessor’s office, Gearhart’s former apartment building was destroyed and the land where it stood is now a parking lot.

“The Gearharts are not above a little larceny,” Warner noted seriously. “They got a healthy chunk of change out of it.”

Marion Warner and John Gearhart

Warner said she was with Kelly Gearhart’s father John Gearhart when the authorities called to inform him about the fire.

“He acted surprised,” Warner said and added that she knows the person from Nelsonville who John Gearhart hired to start the fire.

The money received from the insurance, along with Gearhart’s connections to government officials, helped to start his new career as a developer in Atascadero.

Although arson was the determined cause, no one has been accused of or arrested for setting the blaze.

Following the fire, Gearhart suddenly had the funds to go ahead with his projects while avoiding many of the hurdles and fees less connected developers had to deal with in Atascadero.

Gearhart’s alleged ability to manipulate public officials by plying them with favors and gifts helped make him immune to some of the building inspections and fee requirements that were required of other developers.

Kelly Gearhart at his home in Atascadero

Warner said Gearhart would brag to his father and to her that he had “paid off”  public officials such as Atascadero City Manager Wade McKinney and County Tax Assessor Tom Bordonaro with cash, excursions in his jet and exclusive event tickets.

“He would say that McKinney had been taken care of,” Warner said. “Kelly said you had to put money out to get things done.

“Kelly gave goodies like the dream ticket (boxing). It was OK, like a realtor buying a contractor a case of booze after a sale.”

During family visits, she said Gearhart would boast to his father and her that Atascadero City Councilmen Tom O’Malley and Jerry Clay were his guys and those who wouldn’t do what he wanted were described by him as “commies” or “nuts.”

“While he was on the phone, I would hear him saying stuff like. ‘I told you there is no way anyone is going to find that’ ”, Warner quoted him as saying. “One time, he said, ‘I told you, I took care of that guy, he won’t ask any more questions.’ ”

As Gearhart worked to build more than 400 new homes in the Atascadero area, some city inspectors and officials looked the other way, allowing Gearhart to avoid paying city fees due to falsified and unfinished inspection reports costing the city several hundred thousand dollars.

After former Mayor Mike Brennler went to the San Luis Obispo County District Attorney’s office with information that the city had failed to collect more than $200,000 in fees from Gearhart because 30 cottages were not finalized correctly, he was chastised by local news reporters for attempting to tarnish Gearhart’s name.

Several employees and city officials said that City Manager Wade McKinney, Assistant City Manager Jim Lewis, and Community Development Director Warren Frace instructed city staff to allow Gearhart to skip the city’s Planning Department and deal directly with upper-level city employees.

City officials contend staff would have noticed if initials had been forged.

Warner describes afternoons at Gearhart’s office on Morro Road in Atascadero with Kelly’s wife, Tamara Lowe, and Gearhart laughing over which one was the best at forging initials of Atascadero employees on the city’s inspection reports.

After forging the documents, Gearhart had an employee in the city who would place the falsified reports into city project files, Warner said.

“We were ordered to do illegal things,” said one city employee, who refused to be named — as did a handful of other city workers – out of fear of being fired or blackballed for future jobs.

“Gearhart’s projects were fast tracked. Projects went directly to Warren Frace and skipped planning,” this city employee added.

Gearhart had a number of sub-contractors that he worked with when he started building homes locally in the 1980s. During that time, he persuaded them to move into positions where they could assist him, several sources claim.

Two of the most notables among these former sub-contractors are former Atascadero City Councilman Ken Lerno and current San Luis Obispo County Planning Commissioner Bruce White, Warner said.

Lerno, Gearhart’s former electrician, got into the lending business and began working for Hurst Financial Inc., the lending company that allegedly worked with Gearhart in running a Ponzi scheme that has left area investors claiming more than $100 million in losses.

While Lerno worked for Gearhart’s lender, he continued working with Gearhart and the pair began developing properties together.

Gearhart and Hurst Financial Inc. CEO, Jay Miller, asked Lerno to a weekend in Lake Tahoe where they wined and dined Lerno while encouraging him to seek a seat on the Atascadero City Council, where his votes could have a financial benefit for each of them, said a former friend of the builders who has asked to remain unnamed because of fears of those involved with Gearhart.

Lerno agreed and in 1996 he was elected to the City Council.

In 1999, Gearhart purchased a property on Traffic Way close to a property he and Lerno owned, according to city documents.

A few months later, Gearhart transferred the Traffic Way property to one of his longtime business partners, Daniel Mackey.

However, Gearhart’s name remained as the communication contact for the city and Gearhart continued to attend planning meetings to discuss the proposed project known by some as the “Shacks on the Tracks,” a high-density, low-cost housing project.

Lerno voted to approve the project, which included the proposed construction of homes that were to be built on a narrow piece of land adjacent to Union Pacific’s railroad tracks.

A concerned citizen then stood before the council and explained Lerno’s financial ties to Gearhart.

Lerno resigned from the council on the same day.

“Kelly was really upset when he resigned,” Warner said, contending that her stepson wanted Lerno to weather the storm and remain on the council. “Lerno was afraid of going to jail. And then the FBI started crawling up Kelly’s ass.”

After Lerno’s resignation, Warner said FBI agents tag teamed the Gearharts in an attempt to get information about the alleged collusion. Agents found Tamara Gearhart at the Gearhart office in Atascadero and Kelly Gearhart at a job site in Santa Ynez in Santa Barbara County, where he was working on a project with his longtime golfing buddy and one of the owners in a group of bars in San Luis Obispo, Habib Tavassoli.

Shortly afterward, the grand jury interviewed his father John Gearhart over the allegations of collusion. According to Warner, he took direction from his son before he testified.

“Dad said what he was supposed to say,” Warner said, adding:

“Gearharts don’t worry about telling the truth, they worry about later on. No one got in any trouble.”

Bruce White

Kelly Gearhart’s former plumbing contractor and executor of his and his wife’s will, San Luis Obispo County Planning Commissioner Bruce White, who was appointed by county Supervisor Frank Mecham, was one of the few people who knew how her stepson ran his business, Warner said.

White said he was not aware of any payoffs or that he was the executor of Gearhart’s will.

“Yes I did work for Kelly as a plumbing contractor,” White said. “I do not know what Kelly did with others, but he never promoted me into any positions.”

Gearhart also bragged to his family about his productive relationship with county Assessor Tom Bordonaro, his stepmother told CalCoastNews.

“He laughed and joked with his dad about buying a dinner with the governor for Bordonaro,” Warner said. “He spent a lot more time with Bordonaro than others knew.”

San Luis Obispo County Assessor Tom Bordonaro

An employee of Bordonaro’s said the assessor bragged that he and Gearhart went to Sacramento for a fundraiser with Republican Gov. Arnold Schwarzenegger and showed off a picture of himself and the governor to employees in the assessor’s office.

Seats at the governor’s table required a donation of between $50,000 and $100,000.

“I have never received a ticket to any fundraiser from Kelly Gearhart,” Bordonaro told CalCoastNews. “In fact, I do not have, nor have I ever seen, a picture of myself with the Governor at all.”

At about the same time, critics say Bordonaro directed his staff to do favors for Gearhart, including pushing the developer to the top of the list when processing housing subdivisions.

“I have never given Kelly Gearhart any special treatment, nor am I aware that any staff has either,” Bordonaro said in response to the allegations of favoritism.

However, it appears that Gearhart and his partners were not held to the same property deed requirements as other county builders.

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I can see it now-

(Prosecutor) Mr. Gearhart you are looking at 150 years on the above charges.

We can reduce that to 10 years if you name names and give us evidence against

the officials at the Atascadero City that helped you rob and steal.

(Gearhart) Ok ,OK , I ‘ll tell you everything, and here is the tapes I made while paying off so and so.

If the people involved think he did not keep any evidence against them, think again.Once a rat always a rat.

Hahah LOL, You’re so right about that Robert. Don’t know if you were around when the FEMA fraud story came out but it was hysterical to the extent that Kelly was singing like a nightingale and providing proof. Yes he had evidence and he was singing because he was angry at Wade McKinney and having himself a temper tantrum. I can just imagine what he will do, say and provide when he is facing serious prison time, actually any prison time will be enough for him to “rat up”.

This is very sad and at all levels. It goes to show us how greed can destroy a person when they idolize the mighty dollar. It’s very obvious Kelly and his wife are crooks, and deserve the maximun penalties the law allows. I hope all involved get what is deserved by law as things go forward. My heart goes out to each and everyone who lost a penny to these swines. It angers me that so many lives have been devastated by the Gearhearts and others. Revenge for all is coming, probably not in the way most want indvidaually, but it is coming. I can only imagine what each of you would do to the Gearheart’s if you could have them each for five minutes. The fortunate things is the revenge will be come from a much higher power than any of us. Kelly’s day of recconing is coming. His prideful and arrogant ways will come to a very humbling end that will be as devastating to him idividaully, as it was to each and everyone of you. In scripture it is said,” You live by sword, you die by the sword”. The Gearhearts and others, will be corrected without a doubt. watch and see.

With all the above being said, there is a certain individual on the other side that was formerly of the Atascadero CIty Council for two years. He will also have a very humbling exprience coming his way for his actions. It is just now in the very early stages, but the appropiate people are listening, and looking into this matter. As with the Gearheart’s, the REVENGE AND CORRECTION, will come from a much higher source for this individual as well.

MLW LLC (Mary Louise Warner) is one of the many LLC’s Gearhart used to defraud investors by transferring property’s around and around. Good to see that Mary is willing to talk, hopefully under oath! Her testimony could be crucial to finally nailing Gearhart and sending him back to where he got his start…CMC. Take Jay Miller along too.

Good work Karen, look forward to reading more.

Nice, more scum of the earth in our backyard. You know theres more local engineers,developers, and payoff’s tied to this waste of life. Karen will expose the rest of them and they will fry.

Wait a minute. This Bruce White is on the planning commission. Wow. So Gearhart had a plant on the planning commission. The “i didnt know i was executor of his will” story sounds a lot like “i never enhaled” or ” i did not have sex with that woman” story we have heard before. Regardless of the fact that White is a Gearhart lackey on the commission, isnt it a clear conflict of interest to have a contractor on the planning commission. ? Go karen ! We need to continue to expose this scum. It seems all the supervisors along with Pavvo Ogren are on the payroll doesnt it. (or were gibson and Katcho too busy with gail wilcox to get involved ?)

Oh and is anyone surprised about Bordonaro….anyone at all ? We truly need the Feds to come in and clean up the house. Jerry Shea our beloved DA is right in the mix with these guys and will continue to DO NOTHING. Its an insult to our intelligence, i tell you. If we truly can clean house we will need many special elections to replace our elected officials headed for jail.

Sam, I like the lynch mob mentality, but there’s no wrong with a contractor on the PC.

I have to agree with you racket. There is nothing wrong as long as they have the integrity and if not that, then at least the good sense to recuse themselves when there is a conflict of interest. I have noticed that Bob Kelly has done so in the past (recused himself) when he was going to be involved in listing a property that was making it’s way through the city process. I have also noticed that Tom O’Malley does the EXACT opposite when he has a property involved. He just transfers it into his son’s name, votes on the project and then transfers it back to himself! Yup, that’s a God given known fact and can’t be denied .

Karen Velie should consider choosing her sources a little more carefully. Maybe Kelly didn’t feel the need to pay off Louise because it just wasn’t necessary. Louise Warner is an alcoholic, drug-addicted, former RN (she lost her license due to drug and alcohol abuse) who has a personal vendetta against Kelly. After receiving her last few DUI’s, she was seen begging for money at a local casino. This is what infuriates me about the news media of our country; they are so quick to print fictional material. Though Kelly may have made some poor business decisions, he wasn’t acting alone. I find it disguisting that Louise Warner would throw her (common-law) late husband of 35 years under the bus so easily.

Perhaps Karen will let you be one of her “non fictional “sources being you arent bias and have nothing against Warner.

I have no bias in this situation. I am not a resident of California, nor do I have any affiliation with Kelly Gearhart or Marion (Louise) Warner. I would go further to say that it is a very sad situation for all of those involved. My complaint is simply with the news media. I agree that the corrupt politicians need to be uncovered and penalized, as well as anyone else (such as Kelly Gearhart) who has committed wrongdoing. But should one choose to dig a little deeper and actually research those making alligations, it would be discovered that a lot that is printed (generally speaking) is garbage. Our society, sadly, chooses to believe every detail that is printed.

Generally speaking, when you attack the messenger (Warner) like you did, you reinforce the credibility of the message. Thanks.

Hey Thoughtful, think about this, she is one of them, who is turning states evidence, would you think her to be an Angel? Kelly Gearhart stole from me and if I ever see him I will be hard pressed not to use the business end of my knuckles on his fat fraudster face. Watch the rest start coughing up chunks of evidence against Gearhart, like Miller for one, and Courtney she is not out of the woods yet, they will squeal one by one, Gearhart will be last because he is the worst and has the most to loose, the rats will line up at the FBI’s door if they would get busy and give one of these thieves 25 to life without parole. When a rat get’s it’s head slammed in a trap did you know, other rats will take advantage of the situation? Who sent me that pic, yuk!

You sound like Kelly himself. Poor business decisions? Seriously???? And the Pacific Ocean is just a pond.


Hey Cindy, it’s great to be passionate about the situation, but there is no need for the profanity. Show some class and don’t stoop to the Gearheart level. I know who you are, and your better than that. Everyone has a right to their opinion, even if you don’t like it or agree with it. If you give someone enough rope,THEY WILL hang themselves. Just watch. That rope goes for you to Mike (5150) B. I patiently wait for your turn Mikey.

Yes, well your admonishment is noted and I do apologize if you were offended. If you do know me as you say that you do, then you, like many others know that I never use 4 letter words, which is the very reason I used one and I meant it. I have a hard time with that type of manipulative adult and their twisted excuses.

I googled 5150, so you are familar with that, are you? No such thing as a 5150 B but I wouldn’t expect you to have perfect recall after an incident like that.

Mike Brennler has nothing to do with this story. He always speaks on the record and he is not quoted but it would appear that his silence has managed to shake you up for some reason. Apparently so has Dave Congalton and even little ‘moi’! Yup the heat is on and I can only deduce that each of us, at sometime has said something about a friend of yours or maybe even about you? I don’t know about Mike or Dave but I mean every thing I say and I am always will to stand corrected when proven wrong. So prove me wrong and quit with the hostilities.

Kind Regards

Thanks for the apology. Listen, I have no fight with you. I am giving my opinion on various issues on the CCNews stories just like many others. I’m sorry if you and others do not agree with my views and thats fine. That’s what freedom of speech and expression is all about. I apologize if you think I was being hostile, not my intention at all. I find it very interesting that people on this blog, especially the long time bloggers attack the new guy. It almost seems you guys feel and react as elitist to opinions you do not agree with. Please don’t flatter Mike(5150) Brennler with thinking he has shaken me up. That will never happen. My issue with him has nothing to do with this story at all. I call to question some of his actions while sitting as Mayor in Atascadero. Again it has nothing to do with the Gearhart case. I agree with alot of your views at times, and you do appear to be a stand up person. I have no horse in any of these races and will continue to voice my opinions on anything I feel I want to. You can say what you want about me. I’m just passing the time by stirring the pot until my next assignment. I think I’ve found the right place for now. Let’s have fun.

God bless for now.

The reason I have interpreted the majority of your posts as hostile is because you’re not communicating you’re opinions. You are rather dropping short sarcastic innuendo’s that are left to everyone’s interpretation. If you read the rules that apply to the blog, it say’s that we are to stay on topic ( for obvious reasons). The topic in this thread is practically wide open and if you have a grievance about the way one of our elected officials conducted himself particularly in Atascadero or in relationship to KG then why not state your concerns rather than refer to 5150’s and ropes. I think you would find that you would probably stimulate some dialog rather than me and a few others reacting to what alomost feels like nonsensical gibberish (no offense intended). I’m glad that I “now know” that you are upset about Mikes performance as a sitting CC member becasue I was wondering if you might be a LEO who was upset with some of our opinions surrounding Ian Parkinson as that is one of the only things that Dave, Mike and I have clearly shared and voiced collectively. When you start talking about stuff like :

“If you give someone enough rope,THEY WILL hang themselves. Just watch. That rope goes for you to Mike (5150) B. I patiently wait for your turn Mikey.

I actually wondered if that might be a threat. That’s why you’re feeling that we don’t like you’re opinions.

Kind Regards

Kelly Gearhart has hung himself in figure of speach only. This is a result of his cowardly actions starting back in the 90’s. When I refered to”If you give someone enough rope, they will hang themselves”, I’m implying that Kelly’s decietful actions and coverup was the rope that

ultimitely led to his demise. I also feel, that actions by Mr. Brennler while Mayor, could come back to haunt him as well. Again, he has also stretched out his own rope. At no time have I threatened Mr. Brennler on this sight or in person. The “5150” comes to me from various conversations with law enforcement who also have a very interesting opinion.

Kind regards to you as well.

So copy cat Chuck Laddell, what’s the beef with Brennler, fill us in? 5150 Cat calling the kettle black?

Cindy, You just drop 10 points on my 10 point respectable, admired, & very intersting “person” meter. You don’t have to be vulgar to make a point. It doesn’t look “cool” or intelligent. Too bad.

Is that 10 points out of 10 or 10 points out of 100? :(

I really, really wanted to say that word to him, I know it’s him or his loving honey bunny. No one else could justify leaving their step mother of 35 years homeless and destitute like that except maybe it was Miller and I want to say that word to him too or maybe it was that rip off (what’s her name?) from Cuesta Title and I don’t mind saying that word to her either. It was one of them or someone that is just like them. Next time I’ll use the ****

profanities removed, sorry. keep it PG13 please ????s email

A 4 by 4 post, so fat cousin Gearhart’s jowls can hang over the sides, as the post turns red.

Get the mental picture, PG 13 can be very violent, maybe will have to go PG, sorry it’s just in me and this is how I get it out and by filing my “Default Judgment” against the slim bag on the 12th.

Thought ful? Really poor business decisions? Bet he greased you up real good too!

Kelly Gearhart deserves the,,,,,,,,,,,,,,

DEATH PENALTY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!OR EVEN BETTER, TORTURED TO DEATH BY 90 year old senile victems, who have no control over their actions!!!!!!!!!!!!!!!!!!!!!!!!!! I bet he’s getting a little nervous, I would be, so is Robert M. Jones, Jay Miller and nobody leave out a single one of these smucks, it’s round up time, use the old A-town hanging tree.

To thoughful; I just have to say if you believe this you are wacked out on your own drugs,

” This is what infuriates me about the news media of our country; they are so quick to print fictional material.” They have not been wrong yet better rethink, or just go thoughtless for a while.

Great job Karen and Cal Coast and thanks Dave C, keep the oil hot!

Kelly is a crook pure and simple. He ripped off our company for pennies compared to some but it certainly hurt us. He did in fact try and forge his own documents that he normally paid us to do and we caught him at it. He tried to act stupid about it. If I ever see him again, he better have the cash on him that he owes us or else. He is a punk clear and simple. There is no doubt to the payoffs and collusion with the Atas city offiicials. Sad that they are still being paid our tax dollars.

I feel badly for his investors. There are many people involved in this mess. Many are still representing this city today. It’s just a matter of time now. None of this would have been possible without assistance from the ACC. I wonder who will sing first…?

Lerno and Kelly parted ways years before the Kelly/Hurst thing all finally came to a head. The last time they spoke regularly was right before the Home Depot was built. They owned that properity and the land below on Ferro Carriollo. Kelly screwed Ken on that deal and that was pretty much it. About that same time (around 02 if memory serves) Ken bailed on Hurst because he got screwed by Jay. Point. I don’t think Lerno benifited from this (financially).

I will say that Louise (Warner) is one person I am surprised that Kelly didn’t do more to keep quite (i.e. take care of with money or not screw her out of money). She is one person out of a few that can really bring Kelly down IMHO.

Kelly if you’re lurking here (which I figure you do) you should have paid up chump.

The only person I feel bad for in all of this, is the new baby girl that Tamara and Kelly brought into this mess, this past spring.

BTDT – Lerno, Jay Miller and Gearhart were working together on projects as late as 2004. Remember the 11 single family residences that they managed to squeeze onto a 1.33 acre lot over on Santa Ysabel, thanks to a zone change from commercial/retail to SFR? They didn’t complete that until late 2004 if I recall. After Lerno stepped out of the picture the infamous George Molina stepped in with the Hurst/Gearhart duo, no doubt they owed him some favors too. This is going to get interesting when/if the names actually come out in this series.

The only project I know of the size you mention off Santa Ysabel, is behind and south of Vons. It was around 01-02 that it was built and to the best of my knowledge Ken was not involved in that. Again by ’04 Ken was operating his own loan business called Creekside lending down north (a few doors) of Hoover’s. I’m I wrong???

In ’04 Kelly was finishing up working on Colony Homes on ECR and working on housing down behind Home Depot and had no projects off Santa Ysabel to my recollection in the time frame you mention.

Yes I believe the project was behind Von’s, They started the process in 2001 but they kept trying to add more structures to it and they had to get Zone changes passed, then they went after an extra infill lot (that the fire dept said had to be left vacant for a fire turn around/emergency access etc) and the final Negative Mitigated Dec wasn’t completed until mid 2003. They did manage to build on the little lot that was supposed to serve as fire access to the high density neighborhood. Maybe the rest of the project was completed by that time and they only had to build that one little home on the <5000 sq'? The people on that project (according to the city records and the Tract Map) were Gearhart, Miller, Lerno and a couple that I am not familiar with by the names of Kenneth & Jacqueline Barre.

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