Tribe’s casino pact with white men suspect

April 28, 2009 12:26 am

By KAREN VELIE and DANIEL BLACKBURN

A secret, decade-long, eight-phase strategy by a group of local investors – including one notorious individual now under investigation
for fraud – outlines plans for construction of a Indian gaming casino in San Luis Obispo County and anticipates huge profits for its
principals, confidential documents obtained by CalCoastNews reveal.

Those documents show that Kelly Gearhart, a North County developer with ties to Hurst Financial Inc. (HFI), is a primary partner in
the syndicate. Gearhart’s questionable land dealings, bankruptcies, and financial losses have caught the attention of law enforcement.

Gearhart has linked up with attorney Grigger Jones, Chris Molina and Dan Phillips to sign a contract with the Salinan Tribe of San
Luis Obispo County to “develop a large community self-sustaining, green energy producing Indian reservation development,”
according to the project’s business plan.

Estimated cost of the development, according to the partners’ data, is $409 million.

No specific location for the development has been identified, although four potential sites include one on Los Osos Valley Road and
another in the Santa Margarita area, according to records.
The four venture capitalists entered into a 41-page operating agreement in 2007, each retaining a 25 percent interest in the Pe-Ji-Ho-
Ta LLC. The agreement stipulates that that the LLC will serve as the financing entity and consultant for the proposed casino.

“The securities represented by this agreement have not been registered under the Securities Act of 1933, nor registered or qualified
under any state security laws,” according to the operating agreement.

The tentative plans include:

Phase 1 – Federal recognition and Pe-Ji-Ho-Ta funding/staffing – $4.3 million.

Phase 2 – Purchase participation in Pe-Ji-Ho-Ta, 15 percent – $10 million.

Phase 3 – Land options, 1,000 acres, and EIR process – $1.5 million

Phase 4 – Gaming construction and exercise land option one – $63.5 million

Phase 5 – Commercial construction and exercise land option two – $215 million

Phase 6 – Water treatment, waste water, and power – $20 million

Phase 7 – Resort and golf course construction – $55 million

Phase 8 – Construction of 100 homes and a 200 acre land option – $51 million

“The first three phases are to be funded immediately to insure the timely payment of federal acknowledgement costs, operation of
Pejihota, land acquisition, master planning, and EIR processes. The next phase assumes that the gaming facility is constructed as soon
as possible to provide an income stream,” according to the business plan of the Salinan Tribe and Pejihota of San Luis Obispo, LLC.
The LLC members expect to reap 40 percent of all gaming proceeds for a period of seven years with an option to extend for an
additional 7 years. For all other developments, the LLC is to receive 50 percent of proceeds for 25 years with a 25 year extension
option, according to the business plan of the Salinan Tribe and Pe-Ji-Ho-Ta LLC.

The group projects earnings of approximately $600 million over the next 50 years, according to the group’s records. Currently the
group is focusing on phase three, purchasing a large parcel of land, according to the group’s records.

In an apparent attempt to keep their venture cloaked in secrecy, the group has transferred their LLC filing four times during the last
few years. On Jan. 16, 2007, Gearhart filed a Pe-Ji-Ho-Ta LLC with the state of Nevada. Nine months later, Jones filed a Pe-Ji-Ho-Ta
LLC in California. Jones added “of San Luis Obispo County” to the name and refiled in California on Sept. 19, 2008. In February
2009, Jones filed the Pejihota LLC of Nevada in his name.

According to numerous sources, some members of the LLC and the tribe have boasted they have a politician poised to fast-track their
plans. Without a member of Congress pushing for approval, the procedures required to garner federal recognition for an Indian tribe
usually take the Department of the Interior Bureau of Indian Affairs approximately 10 years to process.

The group speculates the process will take one to two years, according to project plans.

THE HURST FINANCIAL CONNECTION

Local investors report being bilked out of millions of dollars by HFI and Gearhart. HFI president James Miller and his daughter,
Courtney Brard, lured investors with promises of high interest, low loan to value rates, and assurances that funds were placed into
secured accounts with payments provided to developers as the work progresses.

In October, Miller and Brard admitted to state regulators their complicity in fraud. The Federal Bureau of Investigation and the San
Luis Obispo County District Attorney’s Office have also mounted investigations, although no criminal charges have yet been filed
against Miller, Brard, or Gearhart.

More than 1,200 investors, primarily seniors, have placed nearly $100 million with Miller for funding construction loans. According
to the Department of Real Estate, Miller failed in his contractual agreement to protect investors by funding projects only as work was
completed, with progressive payments. Instead, he paid developer Kelly Gearhart in lump sums without any monitoring of the
construction.

Also, in some cases Miller used investor monies to pay interest on previous projects in an apparent Ponzi scheme.

Miller loaned Gearhart $27 million to develop his Vista Del Hombre project, located near the airport in Paso Robles. All though
Gearhart claimed the property was worth between $100 and $150 million, a bank appraisal values the property at $4.5 million.

Sources allege Miller and Gearhart overvalued the property speculating the proposed casino would drive up values.

Of of the $100 million Miller doled out to local contractors, a local attorney estimates more than $60 million went to Gearhart and his
entities. Of that, more than $20 million appears to be unaccounted for.

In February, Gearhart, formerly Atascadero’s Citizen of the Year, filed for Chapter 7 bankruptcy protection in Ohio claiming $6.5
million in estimated assets and $45.1 million in estimated debts. Chapter 7 bankruptcy allows the creditor to start anew.

However, the bankruptcy court is a court of equity where honest men go to discharge honest debts, and trustees do not discharge
tainted debts. Currently, attorneys for the bankruptcy court are investigating Gearhart. The bankruptcy filing fails to mention
Gearhart’s involvement in the Pe-Ji-Ho-Ta LLC.

GRIGGER JONES’ TIES TO GEARHART

Allegations of questionable actions also have surrounded Jones, another former Atascadero Citizen of the Year, for nearly a decade.

In 2006, Atascadero city staff leveled accusations that Jones, at the time a candidate for city council, and co-candidate Bob Kelley had
pressured planners to approve amendments to a Gearhart project in Atascadero. Gearhart introduced the pair to city staff as future
council members.

Community Development Deputy Director Steve McHarris wrote in an e-mail that Jones and Kelley strong armed his staff to “not
only support Gearhart’s request, but waive Planning Commission authority over the change.”
Grigger sat on the Atascadero Planning commission from May 2002 through October 2006. Apart from abstaining on one vote, Jones
voted affirmative on every Gearhart project planning request.

“From the research I’ve done, it appears Grigger was pretty much a rubber stamp for Gearhart projects,” ex-mayor Mike Brennler
said. “If he had a business relationship with Gearhart, I would be concerned that he divulge that relationship prior to voting on
Gearhart projects. I’ve seen no sign of that.”

Miller and Gearhart have both utilized Jones as their attorney on a number of issues. In August 2008, Miller assigned his interest in
more than 10 properties to Jones.

Jones and representatives of the Salinan Tribe did not return reguests for comment.