The trustee managing the bankruptcy case of former Atascadero developer Kelly Gearhart said he has found more assets that Gearhart allegedly tried to keep hidden from creditors.
In a complaint filed recently in U.S. Bankruptcy Court in Ohio — where Gearhart now lives — trustee Harold Corzin alleges that the developer failed to disclose a refund he received when he canceled a condominium purchase after filing for bankruptcy.
A major builder in San Luis Obispo County for more than a decade and once the Atascadero Chamber of Commerce’s Citizen of the Year, Gearhart and his wife, Tamara Lowe, moved to Ohio a year ago and filed for Chapter 7 bankruptcy in February.
Under Chapter 7, a debtor’s assets are liquidated to pay creditors.
Creditors in his bankruptcy case claim the developer owes more than $110 million from defaulted loans and other unpaid bills. Many of those creditors are investors who lent money to him through now-bankrupt Hurst Financial.
Since Gearhart filed for bankruptcy, the Office of the U.S. Trustee and lawyers have been searching for all of the developer’s possible assets to help pay creditors.
In one of the trustee’s latest complaints, he alleged that Gearhart — after testifying under oath three times to the court that he had divulged all of his assets — failed to tell the court that the developer and his wife received a $37,000 refund from a deposit they had made on a Las Vegas condominium.
Gearhart went on to transfer the money to Auble Development, a corporation he had created in a scheme to hide the assets, the trustee’s complaint alleges. Only the name of Gearhart’s attorney was listed in articles of incorporation filed with the state, the trustee alleges.
Gearhart’s attorney, Joseph A. Dickinson, told The Tribune that he set up the corporation as the developer’s statutory agent but had no knowledge of the account or what Gearhart intended to do with the corporation.
Gearhart and his wife could not be reached for comment.
Gearhart is also accused of spending the refund money to improve a property in Wadsworth, Ohio. That work boosted its value to more than $89,000, according to the trustee’s complaint.
Corzin, the trustee, is asking the court to order that all the money and the Ohio property be turned over to the bankruptcy estate, or at least the value of the improvements to the property. The bankruptcy estate refers to Gearhart’s assets and liabilities before he filed a petition for Chapter 7.
“Gearhart, (his wife), and Auble knowingly and fraudulently converted property of the bankruptcy estate to their own use,” the complaint alleges.
The trustee is also seeking punitive damages because Gearhart “acted maliciously in violation of the trustee’s known property rights,” he adds.
Gearhart had turned over the Ohio property to San Luis Obispo businessmen Habib Tavassoli, Fred Russell and the Fred Russell CPA Retirement Trust in November 2008, the complaint states.
Russell, a longtime investor in Gearhart projects, lent $4.2 million through his retirement trust to Gearhart. The property at the center of the trustee’s complaint, as well as other holdings Gearhart had in Ohio, were given as collateral, according to Russell in an affidavit submitted to the bankruptcy court in July.
Though the investors — including Tavassoli and Russell’s business partner Bob Henderson — had signed an agreement through their corporation, Pasohio Investments, to sell the Ohio property back to Gearhart, that deal never went though, according to Joe Diehl, a San Luis Obispo attorney representing the investors.
Russell, a certified public accountant, has invested in Gearhart’s Atascadero real estate developments, along with Tavassoli, since at least 2002, according to county filings.
He and Tavassoli also share ownership of San Luis Obispo bars Bull’s Tavern and McCarthy’s Irish Pub. Henderson does not appear on the early Gearhart loans with Russell and Tavassoli but is connected with Russell and Tavassoli in some businesses, including Pasohio Investments and McCarthy’s bar, according to filings with the county.
“We are super-victims,” Tavassoli told The Tribune. “Yes, we invested with him and he built some houses, and frankly I had no complaint for a long time. But this deal in Ohio has just been a disaster.”
The Pasohio partnership was unaware that Gearhart had put $37,000 into improving the property — which he didn’t even own at the time — Diehl said. The local investors are not accused of any wrongdoing in any of their deals with Gearhart.
“We did nothing wrong. ... If Kelly (Gearhart) could have found a buyer for the property, we did not feel we had anything to lose. We had no idea he had sunk money into it,” Diehl said. “We’re not sitting here investigating Kelly. We’re sitting with a bunch of properties that we can’t sell.”
Since the complaint was filed, Diehl and attorneys Michael Morin and Ken Gibson, who represent Corzin, are working out an arrangement where the bankruptcy trustee would give the investors’ corporation $25,000 for the property. Corzin would then try to sell it for more and keep the difference for creditors, according to Gibson.
“This property is different because it is the one that Gearhart used funds (from the bankruptcy estate) to improve, and we want the money back with any profits to be made from the use of that money,” Gibson wrote in an e-mail to The Tribune. “Gearhart can make post-(bankruptcy) deals, but he can’t take property belonging to the bankruptcy estate and use it for (those) deals.”
In a second complaint filed on Dec. 7 with the U.S. Bankruptcy Court in Ohio, Corzin alleges that Gearhart illegally transferred several cars to family members in Wadsworth, Ohio, to avoid losing those assets to his creditors.
In January 2007, Gearhart had turned over the title to a 2003 Cadillac Escalade to some family members, but the transaction was not completed until Jan. 8, 2008, the trustee alleges.
“The 2003 Cadillac Escalade was transferred ... without the exchange of reasonably equivalent value at a time when Gearhart was insolvent and was therefore a fraudulent conveyance to existing creditors who have filed claims in the Gearhart bankruptcy proceeding,” Corzin claims.
Gearhart also delivered a title to a new 2006 Mitsubishi Raider truck to another family member in July 2007, according to the complaint. The transaction was not filed with the Ohio Bureau of Motor Vehicles until March 28, 2008.
Neither the Escalade nor the Mitsubishi truck was disclosed in the Gearharts’ debtor schedules or statement of financial affairs as required, the trustee alleges.