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.)

By KAREN VELIE

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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WiseGuy

Well, at least we can thank Kelly Gearhart for one thing: Liberals and Conservatives, Democrats and Republicans, bleeding heart tree huggers and sociopathic, selfish warmongers and racists have come together and are agreeing on something: It was a mistake to honor Gearhart as “Citizen of the Year”.


And if this leads to exposing the deeds of Tom Bordonaro and other assorted North County politicians and bureaucrats, well, in some ways, maybe Gearhart will finally deserve some sort of community award.


Bordonaro and others must be frightened and freaking out at this very moment, as they see investigators getting closer and closer to unveiling entire new aspects (and criminals) of this case. But we wont’ be surprised if they are not showing it. We’re talking professional actors and con men who are well-practiced hiding behind their phony smiles.


cheseburger

To wise guy, man that is a cool post, throw in the 1.5 million Kelly Gearhart gave to Kevin McCarthy our Senator, and having properties deeded free and clear to borrow more green, literally stealing what he had already robbed our seniors of,, he should pay dearly for what he ripped this county off for, not only did the investors suffer but every business in the county is suffering, county minus $125,000,000 = bad economics in sad county, and now all his little “big friends” have sweaty little palms now, like the song goes, whatcha gonna do when they come for you?” And it seems they are coming!


WiseGuy

What is particularly sad and pathetic is that McCarthy and Bordonaro both ran UNOPPOSED for their current positions of power. THAT is a sad statement about our community. To me, electing McCarthy or Bordonaro to office rings is just as sick as naming Gearhart “Citizen of the Year.” These are more signs and symptoms of a disease that is infecting the soul of the San Luis Obispo County.


Fedup

I wonder if they have wheelchair ramps in Federal prison.


thinkaboutit

Any way you slice it, that was a cheap shot.


Bluebird

Bruce White is on the county planning commission having been appointed by Frank Mecham. Mecham replaced Ovitt about 2 years ago. My point is Gearhart wasn’t bringing any new projects to the county at this time. This is not a comment about White’s character which sounds very, very compromised. It is a comment about getting the facts right.


James Shepard

I’ve known Bruce White for 25 years. He has been honest and forthright in his dealings with me

and I will be surprised to find out he has acted otherwise. His mention in the article is solely guilt by association and is unsubstantiated by evidence (or even allegation). It is wrong to besmirch a man’s reputation

without fact. It seems a review of Matthew Ch7v1-2 might be in order by the journalist and some ‘posters’.


knows it

The friend of Gearhart who called into Kvec and lied about his name was only right about one thing.


Kelly got some of his early money gambling. He along with the Shores brothers did it in Vegas, they held card games in Atascadero, They had bookies and bet on sports.

I’m sure they had fun. Too bad it evolved into ripping off innocent people.


danika

I grew up with Kelly Gearhart and I have no pride in saying that. He was always a snake. Many will blame Mike’s death on his change but, truth be known, he was an a-hole then. The caller on KVEC last nite named “Hank” had a very distinctive voice and is easily recognized. Nice attempt to discredited Dave and Karen, but there are many, many more like me. People who grew up in Atascadero who KNOW the truth…and it’s now finally being told.


MarkJames

I’m not aware that the Shores ripped anybody off. There was a small problem with some funds that were misappropriated by Ronnie on a project but Jim made sure that he paid that back out of his own pocket. Lets not include the Shores with the name Gearhart.


Cindy

Mark, you’re correct. Jim did see to it that the investor funds on his project were paid back and it was his brother that withdrew the funds from the account unbeknown to Jim. Jim used to be my neighbor and owns property next door. There was a time when I questioned his GOB alliance and complicity. I don’t any longer. He is not a part of all this. In my opinion, he is a honest local that was born and bread in A-Town and represents the better side of the builders and contractors.


knows it

Mark,

Isn’t “misappropriated funds” the root of a lot of these problems?

If you dont think Shores was involved with Gearhart and the good old boys then you dont know enough. You may know alot-but not enough.

I forgot to include Bordonaro as a guy who needs to get his —- kicked. I can hear the guy’s denials now.

I remember listening to KVEC when that crook Bordanaro lied through his teeth on a number of things including not knowing how much he’s getting paid.

The all time best interviews to ever grace the airwaves was on KVEC:

Kelly Gearhart

Tom Bordnaro

Dave-any chance you can rebroadcast those shows? Those topics are hotter now then when they ran the first time.


knows it

If any of you are friends or family of the Gearhart slum army-enjoy the holidays with them. They will be in prison for many holidays to come. I can see the prison love notes now:


Bruno loves Kelly

Rocko loves Kelly

Inmates will like it that there is a new “Kelly” in the joint.


Adios Jay, Kelly, Wade, Bruce. Dont forget to write.

EACH ONE OF YOU A-HOLES ARE RESPONSIBLE FOR THE DESTRUCTION OF INNOCENT PEOPLES LIVES. Jay, Wade, Bruce-you are all just as responsible as Kelly. You ALL had your GREEDY hands in this. Gearhart could not have done this alone.

Jay Miller

Wade Mckenny

Bruce White

3 amigos who all need a swift kick in the A–


Nancy

“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.”

The blogger that posted that statement has to be a complete sociopath. Not only did Kelly and his father conspire to arson a building, they never gave a thought to the danger that it posed to the near by residents. 16 people were burned out of their homes and all their possessions were destroyed. They were renters, most renters don’t have property insurance. Four firemen were injured and one was seriously injured. What is wrong with these people? What kind of person places innocent people in harms way to pocket some ill gotten insurance funds? What about the 16 people who were left with nothing? This guy needs to go to prison, he is dangerous and he skated away only to go on to perpetrate one of the biggest frauds upon the good people of this county that we have ever seen the likes of. He doesn’t have enough years of life left to serve a just punishment in prison.


Lewy

With his education (high school graduate) and background in law enforcement (prison guard), I’m surprised Kelly didn’t come back here to run for county sheriff. He would have been a natural for the job.


hotdog

His comment about those who opposed him as being ‘commies’ reminds us all about Rob Bryn’s comment that the followers of Joe Cortez for Sheriff are ‘commies’. So we now have a sheriff who has this sort of shady character as a main supporter and highly paid and near useless staff member out there at that big money hole called the sheriff’s dept. Way to go Parkinson, the first thing you should do is fire Bryn, if you have any ethical standards!


Dave

Karen will be interviewed about this story Friday night at 6:05 p.m. on News/Talk 920 KVEC.


Iceman

N


hotdog

Iman, what do you have about the news coming out? Since no other media but CCN and the Congalton show have done a thing for the victims of this crook I am very glad they have followed this sordid story. If you wish to stick your head in the sand then do it.


moderator

Time to cool it , we all want to know your opinion about the story, your opinion about other folks posting here;not so much.


moderator

off topic and trollish critique of the editor cheerfully deleted by the moderator,


R.Hodin

Didn’t Atascadero have its own newspaper at the time?


BeenThereDoneThat

Before Kelly relocated to Ohio, the F.B.I. was in town. Since he has left the F.B.I . has been in town. I have to believe they have been looking at both sides (Kelly and city) in this matter. I am getting the feeling this is all going to get quite interesting very soon. Does the county jail have the space to hold all the assholes involved while they are on trial???


Cindy

This is one of those times that I won’t be complaining about paying overtime or hiring more deputy CO’s.

I guess after the trial they will go to federal prison?


BeenThereDoneThat

My guess is that if they find him guilty of lying on the bankruptcy and the fact that the F.B.I. is involved, it will probably be federal charges. In which case then it would probably be a federal prison where time would be served.


Bummer on this also is probably tried in federal court. So we won’t be able to see it in person locally. Best we could hope for is that L.A. or San Fran. get. Worse is tried all the way back in Ohio. I say make the bastard face his investors. He hasn’t yet and should have to look at them and the damage he has done.


Ohio has been a nice way for the wessel to not look at the MANY people he has affected. You still reading at this point Kelly? You piece of s**t