Two key witnesses in the case against former Grover Beach financier Al Moriarty testified in San Luis Obispo Superior Court on Wednesday during a preliminary hearing that will determine whether there is enough evidence to move forward.
A dozen people sat in the courtroom for more than five hours, listening to testimony that could ultimately lay the groundwork for a trial.
Judge Dodie Harman will decide at the end of the preliminary hearing, which is expected to last four days, whether the case will proceed.
In May, Moriarty, 80, pleaded not guilty to seven felonies involving fraud and embezzlement. He remains in County Jail with bail set at $5 million — the minimum alleged to have been embezzled.
Moriarty is accused of embezzling more than that amount from investors. Additional investments could bring that figure to more than $20 million.
The two witnesses presented Wednesday by Deputy District Attorney Steve von Dohlen were Doug Gooding, assistant chief counsel with the state Department of Business Oversight — formerly the Department of Corporations — and A.J. Santana, a senior investigator with the District Attorney’s Office.
Gooding, who was qualified in court Wednesday as an expert in securities law, said Moriarty did not have the required permit to sell securities or issue promissory notes and that he was not licensed to be an investment adviser.
“I checked the database for Moriarty or Moriarty Enterprises, and nothing came up,” Gooding said.
He said Moriarty was at one time registered as a broker but that credential expired in 2005. Gooding said that registration does not entitle someone to sell investments to clients but can be used to show that Moriarty had enough background to be familiar with the requirements of financial advisers.
Moriarty is alleged to have used investor money to pay loans due to other investors.
Gooding testified that doing so is “the poster child of omission. … The investor has the right to know that.”
Scott Whitenack, Moriarty’s latest attorney, asked Gooding whether the Department of Corporations was doing its own investigation of Moriarty prior to the case.
“It was initially brought to our attention by the District Attorney’s Office,” Gooding said.
Moriarty, of Moriarty Enterprises, is charged with seven felonies: fraudulently offering or selling securities; three counts of selling securities with false statements or omissions such as telling investors their money would be secured by gold, real estate and his own life insurance policy; grand theft by embezzlement of investor funds; and two counts of acting as an investment adviser and offering or selling securities without the required licenses.
In addition, two enhancements were included for an aggravated white-collar crime and excessive taking of more than $3.2 million.
Santana retold, in detail, a conversation he said he had with Moriarty before his arrest.
“He told me that he was buying gold with money received from clients,” Santana said. “He told me he was buying real estate.”
In Santana’s testimony Wednesday about his prior conversation with Moriarty, he said “he told me he could do whatever he wanted with the money because it was a personal loan to him.”
Moriarty is said to have borrowed money from individuals who signed a promissory note with him that guaranteed them 10 percent annual interest paid back over a set number of monthly payments.
Moriarty told those investors their money was secured in three ways: gold, real estate and a $6 million life insurance policy should something happen to him.
However, Santana testified that the gold was gone by April 2011 and the life insurance policy was solely in the name of Moriarty’s wife.
Santana recounted the stories of several investors who had invested money ranging from $250,000 to $320,000 with Moriarty.
“He used investor money to improve personal property owned only by he and his wife,” Santana said.
Court was adjourned before Whitenack could question Santana.
The preliminary hearing will resume Friday at 10 a.m. in San Luis Obispo Superior Court.