$2 Million Fraud Trial Opens on Cal. Coast

     SAN LUIS OBISPO (CN) – Former Ultimate Fighting champ Chuck Liddell should have done more research before giving $2 million to an allegedly fraudulent developer, an escrow company attorney told jurors Wednesday.
     But Liddell’s attorney said the developer couldn’t have committed the fraud without the escrow company’s help.
     “There was fraud. They knew it,” Warren Paboojian said during his opening statement. “And I think that is what the evidence will show.”
     More than 500 plaintiffs sued Cuesta Title Company, along with Stewart Title of California, which acquired Cuesta Title, and Stewart’s sister company, Stewart Title Guaranty. The plaintiffs say Cuesta Title helped developer Kelly Gearhart run a Ponzi scheme that bilked investors for millions.
     Cuesta Title has successfully fended off suits in two trials, including a bellwether 2013 trial that was to predict what would happen in hundreds of other pending cases.
     Most of those cases have settled. But Liddell claims his case is different because he dealt with Cuesta Title employees directly, whereas the losing plaintiffs dealt with Cuesta Title through a lender.
     Joined by many other plaintiffs with similar claims, Liddell’s suit is on trial in San Luis Obispo Superior Court.
     As a fighter, Liddell stunned opponents with his striking power, then celebrated knockouts with a victory scream that helped make him a fan favorite. Sitting next to his wife in court, he watched opening statements quietly, in jeans and his signature Mohawk haircut.
     Liddell became the face of the UFC in 2005 after beating Randy Couture for the light heavyweight championship. As Liddell and the UFC soared in popularity, Liddell’s fortunes grew, and he decided to buy property in San Luis Obispo County – home to the accounting major’s alma mater, Cal Poly – Paboojian said.
     Buying property there was not a risky proposition, the attorney said: “Chuck was buying something, no different than you buying a car.”
     Liddell knew Gearhart, who talked him into buying four lots at a $24 million golf course development called Vista de Hombre, Paboojhian said. Gearhart also persuaded Liddell to go to Cuesta Title, Paboojian said.
     But the Cuesta Title agent handling the Vista de Hombre escrows had a conflict of interest, Paboojian said. Melanie Schneider had invested $50,000 in the proposed development, and also had a close relationship with Gearhart, the lawyer said: She flew with Gearhart and his wife on their private jet to Las Vegas to see the American Music Awards and an Aerosmith concert. She briefly lived in the Gearharts’ guest house, and she became romantically involved with Gearhart’s brother.
     “Chuck Liddell did not know that,” Paboojian said.
     Gearhart was running a Ponzi scheme, Paboojian claimed in court documents, using investor money to pay himself and other investors. And at some point, he said, Cuesta Title released Liddell’s money before close of escrow and without transferring title to the properties.
     Paboojian suggested Liddell’s signatures on amended documents were forged.
     Gearhart, a former Atascadero Citizen of the Year, will be sentenced June 1 in Los Angeles Federal Court on fraud charges. Because he declared bankruptcy, investors who lost money focused their lawsuits on Cuesta Title.
     But Gearhart was the one who defrauded them, said Cuesta Title’s attorney Gerard Kelly.
     “They took the risks,” he said. “When the investments turned out bad, they tried to find somebody else to blame.”
     Liddell’s co-plaintiffs invested with Gearhart because they had enjoyed profits from him in the past, Kelly said.
     “They loved it, because he was a success for many, many years,” Kelly said.
     While Liddell was a new Gearhart investor, he wasn’t careful when he entered into a risky proposition, that attorney said. But Liddell too trusted Gearhart, having flown on his jet to his own fights and other bouts.
     “Chuck Liddell was a passenger on that jet many more times than Melanie Schneider,” Kelly said.
     Kelly said a handwriting expert will testify that Liddell did sign papers to release his money before the title transfer. Liddell simply trusted his “good friend and traveling buddy” Gearhart, Kelly told jurors.
     “Mr. Liddell did no investigation,” the attorney said. “He just plopped down his two million bucks and said, ‘Release the money immediately.'”
     Escrow officers do not offer financial advice, he said, nor do they give opinions on whether investments are good or bad. They are obliged to follow the directions of the parties, which Cuesta Title did, he said.
     Schneider had no idea Gearhart was committing fraud, the attorney said.
     While Liddell lost $2 million, the investment did not wipe him out financially.
     In 2012 Liddell bought a $2.6 million home in the same neighborhood Justin Bieber and Kim Kardashian call home, according to new reports. Since he retired from fighting, the former “Dancing with the Stars” contestant has become an executive with the UFC and stepped up his acting career.
     After Gearhart’s Atascadero home was foreclosed in 2008, the San Luis Obispo Tribune reported, he moved to Wadsworth, Ohio, where he continued to work as a developer.

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