Former mixed martial arts champion Chuck Liddell believes his signature was forged on escrow documents, causing him to lose $2 million to disgraced developer Kelly Gearhart, according to documents filed by Liddell’s attorneys.
But attorneys for the developer’s escrow companies say Liddell did sign off on the funds — and should have known that investing in Gearhart’s hard-money scheme was a risky move.
Hard-money lenders provide funds to borrowers at high interest rates, typically about 12 to 14 percent. The lenders pool investor money into securities typically backed by real estate deeds. As such, hard-money loans are considered a high-risk/high-return investment.
Liddell, a former San Luis Obispo resident and a Cal Poly graduate and wrestler, was once considered the “face of the UFC,” the Ultimate Fighting Championship, and is now starring in television commercials and movies. While still fighting, according to court documents filed by his attorneys, he made four real estate investments with Gearhart, each for $500,000. But, Liddell says, both Gearhart and the title companies that handled the escrows defrauded him.
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Gearhart, a 2005 Atascadero Citizen of the Year who now lives in Ohio, pleaded guilty in federal court last year to two counts of wire fraud and one count of money laundering after scamming investors out of as much as $20 million. He is scheduled to be sentenced in Los Angeles on June 1.
A jury trial for Liddell’s civil suit begins today in San Luis Obispo Superior Court.
More than 500 plaintiffs have filed civil suits related to Gearhart’s fraud. But because Gearhart declared bankruptcy, the suits, including Liddell’s, have focused on the title companies: Cuesta Title Company, Stewart Title of California, which acquired Cuesta, and Stewart’s sister company, Stewart Title Guaranty.
In 2013, a “bellwether” trial was held during which eight of the plaintiffs claimed they lost close to $4 million in damages from a Ponzi scheme Gearhart orchestrated with cooperation from the title companies.
That trial was to foreshadow what would likely result with many of the remaining plaintiffs, most of whom were also represented by the law firm Kirby, Noonan, Lance & Hoge. But after a nine-week trial, a jury ruled in favor of the defendants, prompting most of the remaining plaintiffs to take settlements.
Plaintiffs in the bellwether trial “put enormous resources into it, in a failed effort to establish a precedent they could use” for the remaining plaintiffs, according to a document filed by Cuesta Title attorneys in the Liddell case.
Fewer than 30 suits related to Gearhart’s frauds are still pending, according to Liddell’s motions. Three plaintiffs with facts similar to those in Liddell’s case are involved in the same trial as Liddell.
According to a Tribune review of hundreds of pages of court documents, Liddell’s attorneys believe his case is different from the bellwether trial.
The other plaintiffs, they claim, used a loan broker to represent their interests, whereas Liddell did not.
“In Liddell’s claim, Liddell was a principal in multiple escrows where Cuesta Title Company was the escrow holder,” one document states. “Cuesta Title Company made misrepresentations to Liddell directly and failed to disclose adverse facts to him.”
Jay Hurst Miller of Hurst Financial, one of the loan brokers the other plaintiffs used, pleaded guilty in 2011 to four counts of fraud and money laundering.
The criminal cases against Miller and Gearhart charged that Gearhart enticed hundreds of investors to give Gearhart money for proposed developments, including one called Vista del Hombre, which was to include a golf course, commercial buildings and residential lots in Paso Robles. But instead of paying for new developments, investor money was used to pay Gearhart and other investors — a Ponzi scheme.
The plaintiffs in the lawsuits have focused their legal efforts on Cuesta Title loan officer Melanie Schneider, who was a close friend of Gearhart and his wife. Schneider often socialized with the couple, according to another plaintiff’s court motions, flying to Las Vegas on Gearhart’s private jet to attend the American Music Awards and an Aerosmith concert.
She eventually lived in a guest house on Gearhart’s property, according to the court documents, and began a romantic relationship with Gearhart’s brother.
While Schneider has denied knowing about Gearhart’s fraud, the various plaintiffs claim she helped Gearhart commit it.
Most investors paid for construction loans, Liddell claims, but he invested in Vista del Hombre lots, opening escrows with Cuesta Title. However, he claims Cuesta Title released his funds before the close of escrow and without transferring title to the properties.
“Liddell did not agree to release funds prior to the close of his escrows and believes that his signatures on the addendums and additional escrow documents that released his funds before escrows closed were either forged or obtained by Cuesta Title Company’s fraud,” one document reads.
No Cuesta employees, Liddell claims, saw him sign the documents nor can they verify when he signed them.
Cuesta attorneys, however, plan to call a handwriting expert to the stand to testify that Liddell did, in fact, sign the documents.
“In late 2007, prior to the close of escrow, (Liddell) signed amendments to the escrow instructions which expressly authorized the conduct that they are suing on: authorizing the escrow holder to release … funds to Gearhart immediately and prior to the consummation of escrow without their receiving title to the property,” reads one document filed by Cuesta Title.
In what is expected to be a two-week trial, Cuesta Title attorneys plan to call several witnesses to the stand. They include an associate dean for academic affairs at Santa Clara University, who is expected to testify that Cuesta Title was compliant with applicable standards, and Joan Parker, a certified financial planner who will “address the inherent risks in ‘hard-money lending’ ” and the need to diversify investment portfolios.
Meanwhile, Liddell’s attorneys are working to suppress evidence about the former fighter’s finances. According to court documents, they don’t want jurors to hear about Liddell’s wealth, endorsements, level of success or investments in college funds for his children, saying such information “will create undue prejudice, confuse the issues, or mislead the jury.”
Nicknamed “The Ice Man,” Liddell is credited with helping bring mixed martial arts fighting to the mainstream. Now an executive with the UFC he helped popularize, he has recently starred in a series of high-profile Duralast commercials, and he is set to star in the movie “War Pigs” with Mickey Rourke and Dolph Lundgren.
He sold his San Luis Obispo residence in 2011 to pursue business opportunities in Los Angeles.