Kelly Gearhart’s personal fall from grace

December 18, 2010

John Gearhart

(Editor’s note: This is the final in a four part series about the story of North County developer Kelly Gearhart and his political allies. Part one is Fraud, arson and betrayal. Part two is Gearhart’s control of Atascadero. Pat three is Gearhart’s casino – the final gamble.)

By KAREN VELIE

The political and financial powerbrokers of San Luis Obispo County might never have heard of Kelly Gearhart if he hadn’t decided to take advantage of family members, including his own father, to power his way to the top.

His lust for power was epitomized by what his common-law stepmother of 35 years once said about him:

“I did whatever he asked me to and then he turned on me,” stepmother Marion Warner said about Gearhart’s financial manipulations that eventually cost her home and retirement. “He was the closest thing I ever had to a kid. I never thought he would hurt me.”

Born 50 years ago in Ohio, the controversial former San Luis Obispo County developer is now the subject of a federal organized crime investigation that started after authorities learned that Gearhart had allegedly cheated hundred of seniors out of more than a $100 million, broke numerous laws and betrayed some of those closest to him.

After Warner’s home in Atascadero was foreclosed on, she agreed to several lengthy interviews with CalCoastNews during which she described Gearhart’s rise from a troubled childhood to power through his financial and political connections.

Warner said Kelly Gearhart’s dad, John Gearhart, would get into physical altercations with both his former wife, Barbara, and later herself in front of his sons. His mother, Barbara Gearhart, moved out of the family home when Kelly Gearhart was about 11, divorced John Gearhart in 1974 and now lives in Colorado.

John, Barbara, Kelly, Mike and Doug Gearhart

When Kelly Gearhart was 10, his parents returned to Ohio to attend a funeral. They were walking home from a club loudly arguing when they passed a group of men gathered on a porch.

John Gearhart and some of the men began exchanging words, according to a report in the Akron Beacon Journal. His father, a former professional boxer, went back to the club and returned with a group of friends wanting to fight.

About a dozen people joined in the violent skirmish. Two of the men from the porch were severely beaten and required medical treatment for their injuries, the Akron newspaper reported.

Sean Dawes, 28, took a gun from the house and fired into the crowd, wounding John Gearhart in both legs and the shoulder and Barbara Gearhart in the back, the Journal said. For years, John Gearhart bragged that he had pounded Dawes even after he was shot and would have inflicted more injuries if he hadn’t been wounded, Warner quoted him as saying.

A few years later, John Gearhart opened the Bingo Palace in Coventry, Ohio, according to the Journal. For $100 a night, Gearhart rented the facility to people who claimed the remaining profits were donated to charity.

Eventually, Summit County Common Pleas Judge James V. Barbuto ruled that the games were, in effect, illegal because they constituted a lottery.

Those who have known Kelly Gearhart over the years suggest that his father’s illegal gaming scheme in Ohio has affected his judgment, including coming up with a plan to have the Salinan Indian Tribe recognized by the federal government in order to open a casino that he would have an interest in.

At about the same time, Kelly Gearhart’s brother, Mike, died in a tragic accident during an eight-grade graduation party in 1973 at Lake Nacimiento. The 13-year-old swung out over the lake on a rope, dropped in and didn’t resurface.

Authorities said the boy drowned.

The death of their middle son put the Gearhart family into an emotional turmoil.  The wife moved out to live with a man she worked with at a Thrifty Drug Store and would eventually cut her deceased son’s images out of most of the family’s photos. The boys, Kelly and Doug, remained with their father, who began drinking heavily.

Kelly Gearhart

In July 1977, Kelly Gearhart, then 15, was traveling at a high rate of speed on Traffic Way in Atascadero with a group of friends when he lost control of the car he was driving and was broadsided by another vehicle. Gearhart’s best friend, Raymond Gin, died and four others were injured, according to the San Luis Obispo Telegram-Tribune.

Gearhart suffered internal injuries and was hospitalized. After the accident, he was ostracized by many of his friends while parents of the other friends in the car sued the Gearhart family.

The incident, some say, affected Gearhart, occasionally driving him into bouts of guilt and anger.

The lawsuits cost the Gearhart family their home on Colorado Way in Atascadero. About the same time, his mother divorced his father and she was awarded the family furniture, including the boy’s bedroom sets, as part of the divorce settlement. John Gearhart and son Kelly moved into a small apartment. The other son, Doug, moved to his own place.

It was at about this time that Warner moved in with John Gearhart, a contractor at the time, and Kelly, who she said were sleeping on mattresses on the floor.

In some ways, Kelly Gearhart would follow in his father’s footsteps. After a short stint as a guard at the California Men’s colony, he began working in the construction business. However, while Kelly Gearhart was a heavy gambler, he did not drink alcohol.

In order to move ahead or to reimburse others he owed money to, Gearhart turned on many of those who supported him

In the early 1980s, John Gearhart was working with childhood friend Dan Mackie on a project in Atascadero. That was before son Kelly went to Mackie with claims that his dad’s drinking was causing problems at the work site.

Mackie, who owned a gym in Ventura and did not drink, demoted John Gearhart and placed his non-drinking son as the lead on the site.

“John was really hurt and he never forgave Dan,” Warner said. “Kelly finagled his way in by claiming John drank too much.”

For decades, Mackie was one of Kelly Gearhart’s biggest financial backers and went as far as making him the executor of his will, a mistake that would financially devastate his family.

Dan Mackie died in December 2007.

In 2009, a month before Kelly Gearhart filed for bankruptcy, he transferred a deed that belonged to the Mackie Trust to Sean Freeman without authority to cover a $700,000 debt. In addition, authorities discovered that he did not disclose the transfer to the United States Bankruptcy Court as required by law, according to court records.

Police then evicted Mackie’s widow from her home.

The bankruptcy code says no creditor is entitled to preferential treatment. And, anyone, who gets paid in the 90 days before a bankruptcy is filed, usually has to return the money.

In 2008, following reports by CalCoastNews that Gearhart was in serious financial distress, San Luis Trust Bank placed liens on 13 properties owned jointly by Gearhart, wife Tamara Lowe, Fred Russell and Habib Tavassoli. The properties are in Wadsworth, Ohio.

Russell and Tavassoli are co-owners of a string of bars in San Luis Obispo, including McCarthy’s Irish Pub on Marsh Street.

Then, just 91 days before Gearhart filed for bankruptcy, he transferred 35 properties in Wadsworth with a value of approximately $1.5 million over to Russell, according to federal court records.

In June 2009, the bankruptcy trustees filed a motion to force Russell to transfer the properties back to the Gearhart estate. In interviews, Gearhart said he had transferred the properties to cover debts he owed to the Fred Russell CPA Retirement Trust.

Russell fought the trustees’ motion claiming that he was a hard-money lender in California and that investors, primarily seniors, had invested into the lots. The court accepted Russell’s claim and he was able to keep 33 residential lots and two commercial lots.

Even so, officials from the California Department of Real Estate said that Russell is not a licensed hard money lender.

Warner, Gearhart’s common-law stepmother, said he began wooing the rich and powerful while in his early 20s.

As Kelly’s reputation as a high-profile developer grew, he was able to form beneficial relationships with numerous local and high ranking politicians. Gearhart was touted by several city officials in Atascadero as the city’s hero.

He regularly dined with then state Sen. Able Maldonado (R-Santa Maria), had a direct line to County Tax Assessor Tom Bordonaro and even dined with Republican Gov. Arnold Schwarzenegger of California, sources said.

Warner said Gearhart would ask her to help him funnel money by moving contributions through her checking account to state and local politicians.

She also loaned him about $700,000 —  her entire savings — when Gearhart said he needed the funds to make him appear in good financial shape. He said the monies would be invested into a property and she would receive 10 percent interest on her investment.

In 2009, not long after his father had passed away and following threats from angry investors, Gearhart moved to Wadsworth, Ohio. Before he left, Gearhart asked Warner to meet him at San Luis Trust Bank to sign papers regarding her investment, Warner said.

Marion Warner and John Gearhart

Gearhart and Warner went into San Luis Trust Bank and while Warner thought she was signing documents protecting her investment, she, in fact, was signing several of Gearhart’s outstanding loans, totaling about $559,000, into her name.

Bank officials approved the loans even though the loan application claimed that Warner, unemployed for more than two years, was an employee of a suddenly back-in-business  Gearhart Development.

“Kelly would laugh and say, ‘All I have to do is talk about old cars . . . they will give me anything I want,’ ” Warner said.

“Kelly made fraudulent statements to San Luis Trust Bank. I took $500,000 of Kelly’s debt.”

The bank foreclosed on Warner’s loans and her home earlier this year. She has been forced to sell off personal possession to pay utility bills and other debts.


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WiseGuy

Can anyone provide a list of people who Kelly Gearhart was able to “persuade” to “lend” him large sums of money AFTER it was apparent Gearhart would be fleeing California and likely never pay back those loans?


Was it simply Gearhart’s “charm” that would “inspire” people to hand over thousands and thousands of dollars to Gearhart when he was on the run? Is it that folks in North County are simply very compassionate and generous when it comes to “helping” out a local boy when he runs into a bit of trouble?


We would hate to imagine that these “generous” folks handed over the money to Gearhart with the hope he would take the money, move out of state and never be seen associating with these folks again and that he would never mention their names during the ensuing legal investigations.


Much nicer to simply imagine we live in such a generous, compassionate community where people are quick to hand over thousands of dollars to help a local boy “get back on his feet”.


willie

I have observed that it typically works this way:

His charm, looks, talk (also his car, airplne and associations) empress an intial group of “respectable and trusted” people in the community (first group of suckers) and this group toot his horn to the rest and reinforce his credibility, then it grows from there.


roymann

He also had a successful track record for years. Investors received 12% monthly and in time their principal was returned. This brought them back time and time again. For 20 years everyone made money.


standup

Well wiseguy, it’s nice to see you and I agree on this topic 100%. As a contractor that worked for Kelly, we know he was hurting for a while. His money was probably running out long before any of us knew about it. He paid back some of his contractors but not all of them by any means. He left us hung out to dry but for a pittance compared to many others. I still don’t understand why Tamara has gotten off from the bankruptsy other than Kelly may have provided the Feds with incriminating evidence against public officials in turn to let her be free of debt. It still doesn’t get her off federal charges that may come soon. I wish I knew where he buried some money. Somebody does. I guess we will have to wait for the pennies he will make producing license plates for the rest of his life.


WiseGuy

Important phrase in this article: “County Tax Assessor Tom Bordonaro”.


Isn’t it interesting that Mr. Bordonaro has been keeping an especially low public profile these days. Rather odd for an elected official who has always been so eager to climb the political ladder.


Maybe Dave Congalton could invite Mr. Bordonaro as a guest on the Dave Congalton show, and Mr. Bordonaro can tell us all about what he knows of Kelly Gearhart’s “business” practices and perhaps lay to rest all the suspicions that surround the business and social relationship between Mr. Bordonaro and Gearhart.


Maybe Dave could chime in here and let us know if he’s invited Mr. Bordonaro to come on the air lately and if so, what kind of a response has he gotten.


Then there’s Wade McKinney, and Jerry Clay, and quite a few other public figures who, it is easy to imagine, could shed all kinds of interesting light on this tragic situation regarding Kelly Gearhart. Wouldn’t they be EAGER to speak out and assure the public they have no direct involvement with any CRIMINAL activities associated with Gearhart. Isn’t that reasonable and prudent for these “trusted” public officials? Shouldn’t they be eager to put the public’s mind at ease and make it clear we can still trust these influential local leaders who face so much temptation as MILLIONS of ill-gotten dollars swirl around their community as men like Gearhart look to circumvent democracy and a variety of laws that they hope they can avoid through strategic payment and other “favors”?


Isn’t it time these local leaders step back into the spotlight and speak up and reassure the public whose trust they have told us over and over again that they deserve?


Wouldn’t that be the RIGHT thing to do at this precarious time when the very foundations of our local governments appear so shaky and corrupt?


willie

No doubt about it.

It would be good for Bordonaro and the community!

Those that have faith in him should expect him to come in good faith.

Those that have suspicions about him will be allowed to and be examined him.


DashRiprock

I think the San Luis Trust Bank Board of Directors and their bank president should all be investigated heavily, what a bunch of highly educated morons falling prey to the good-old-boy network. For crying out loud, the city of San Luis Obispo isnt a metropolis, however it has 40,000 plus residents, but acts like it is Hooterville. The board of directors is a group of people legally charged with the responsibility to govern a corporation. In a for-profit corporation, the board of directors is responsible to the stockholders — what a bunch of lazy kiss ass do-nothings….they gave Gearhart Carte Blanch with the bank, and the bank is going down soon.


PASSENGER

In the car acident in 1977, I was in the car that Kelly hit head on. I was pregnant and did not lose the baby, my son is now 32 years old. I do believe there was alcohol involved on Kelly’s part. The life of Raymond was a senseless tragedy and did not have to happen. An unlicensed young man of 15 who had been drinking and then chose to drive a car was the reason for Raymond’s death and if Kelly has had a hard time with that so be it. He created it. It seems he didn’t learn much from the death of his best friend (that he caused). He went on to hurt a lot of people. I still fill the affects of his reckless driving everyday. Just to set the record straight it was not a red Cadilac it was an Oldsmobile Cutless Supreme.


cheseburger

I am overjoyed that you did not loose your baby, I believe you because my friends wife said exactly the same thing you said, except that had lost the baby, I have kid’s and don’t know how I’m going to feed them because of that creep, NOW MAYBE PEOPLE WILL BELIEVE ME!


“I do believe there was alcohol involved on Kelly’s part. The life of Raymond was a senseless tragedy and did not have to happen. An unlicensed young man of 15 who had been drinking”


I WAS TOLD BY MY SOURCE THAT HE NEVER DRANK AGAIN. SO IT WOULD BE EASY TO SAY HE NEVER DID!


PaulJones

I find it odd that so many bloggers are focusing in on the car accident. Why would anyone believe that there was a cover up? This occurred 35 years ago and Gearhart was 15 years old. Back then, a minor was minor was a minor. Minor’s weren’t charged with man slaughter for a first time offense and even if he had been drinking, DUI charges were rare as there was no BAC testing guidelines set to determine if a person was too intoxicated to drive, it was a judgment call that was hard to prove in the courts. I will add that everyone who knew Gearhart states that he never drank, he was just a kid showing off and driving way too fast which resulted in what was considered an “accident”. Today we are far less tolerant and more likely to hold a minor fully accountable for their actions, but not so much back then.


I also lost friends in car accidents who were reckless and I lost more than one. That accident has nothing to do with the concerns that we are confronted with today; 35 years later. Where is everyone’s money and how do we get it back? Is he hiding it or did he gamble it away?


I will add that I do appreciate CCN doing the story, it familiarizes us with many of the aspects in the life of a man who was reckless enough to swindle and separate us from all our money.


cheseburger

Well Paul Jones the reason I focused on the car accident, is that, I knew it had been buried, just like the money has been buried, and if I/WE could get to the bottom “uncover” what happened then, it would give hope to many that WE/I/F.B.I. can overcome and uncover the money from under the slime and dirt of corruption that lies over it. You see there was a means to my madness and I am sorry to the friends and family of Raymond Jin, may he rest in peace.


cheseburger

“In 2009, a month before Kelly Gearhart filed for bankruptcy, he transferred a deed that belonged to the Mackie Trust to Sean Freeman without authority to cover a $700,000 debt. In addition, authorities discovered that he did not disclose the transfer to the United States Bankruptcy Court as required by law, according to court records.”


Okay the Cheseburger wants the public to judge, should I be granted a default Judgment entered against Gearhart, on November 22, 2010; without the help of an attorney, this took 3 years of my life to accomplish. It is obvious beyond a reasonable doubt, that this is absolute proof to the court, that Gearhart’s request and threat to simply do a declaration that “somebody” had left a message on my phone, and the Default would simply be set aside. The threat was made by Derrick Weston an attorney, or just a buddy. Chese asid “NO, have Gearhart call me”, on a return message because the guy was to afraid to answer his phone! Maybe he saw what we did to “Grigger” and haired out, this clown was,,,,,


“NOT REPRESENTING GEARHART, JUST ASKING FOR MORE TIME ON HIS BEHALF,”


Isn’t that illegal to have an attorney contact me, who has not been retained by the defendant!


willie

If you have evidence of timely and proper notice:

You can object to untimely and fribious continance or set aside.

Case law is against someone waltzing in a last moment at a lost making fribilous request for continuance or administrive set aside.

Do it in wrtiting (I warned you of this despite of my favorite thumb down fans LOL)

Remember this: there is a fine line between making good faith effort communication and being ensnared or swindled by desparate swines.


cheseburger

I have submitted a prove up packet to the court and in it it states,”Gearhart was served with my complaint on Dec. 3, 2008″, two months before he even filed for bankruptcy thanks for the help!

And NOW, Gearhart is waltzing into court three years later,


“Case law is against someone waltzing in a last moment at a lost making fribilous request for continuance or administrive set aside.”


Thanks for helping. And I don’t give a dam about thumbs down, I don’t vote here!


Cindy

Go get him chese. Your one tenacious dude, I’m routing for yah.


GO CHESEBURGER GO.


Cindy

OOPs – your = you’re


cheseburger

Cindy you are on top of this, the car issue has gone far enough and seems resolved, may we move on, do you or anyone else know why the Tasty Freeze is now in Fred Russell’s son’s name, seems some creditors are being payed before others too me. Did he get a picket sign or maybe good old cold blue steel.


willie

If anyone were to ask me if I believe that if not for Kelly Gearhart’s past hardship and suffering in life he would not have done what he did, my answer is NO!

If anyone were to ask me if believe Kelly Gearhart did what he did because he wanted to, my answer is YES!


Does the fact that he had a terrible and painful past excuse him?

Let the 1200 (minus those decease) decide that!


Does this sad story restore Kelly Gearhart and his web of political officials saints? NO!

Does this sad story transparency turn CCN into a monster? NO!

WHAT IT IS, IS A LONG OVERDUE CORRECTION IN SOCIETY, YES!


If your sympathetic Kelly’s past, help him pay back the $140 million. I am sure everyone can work out some forgiveness.

Not a problem and reasonable!

Wheres the money?


oldatascadero

I agree that there are alot of people who have sad lives and dont do the things kelly did. He is a monster who lacks alot of things. Also CCN is not a monster they are reporting the news….Of course this does not restore KG. I am saying I do feel bad that Raymonds family has to relive that horrible day again and I do not think they deserve it. Kelly needs to repay the money and go to prison for what he did. The whole disgusting story is sad. The seniors that were ripped off to the people that worked for him that he treated with no respect….What makes a person do these things, how does it happen.


Nancimeek

The transactions which took place? Who was the attorney of record handling these real estate transactions Transfers of property etc?