Kelly Gearhart’s personal fall from grace

December 18, 2010

(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.

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.

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.

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.