Suit details Heath pitch to investors

By DEVONA WELLS / The Press-Enterprise
A lawsuit filed this week sheds new light on the inner workings of D.W. Heath &
Associates, providing details of how investors say those running the company used every
advantage to cheat them of their nest eggs.
Believed to be the first civil lawsuit filed in the Heath matter, it renews accusations of a
massive Ponzi scheme that drew in 1,848 people, including many who signed over their
savings and retirement accounts. The suit seeks at least $10.8 million and was filed
Wednesday in San Diego County Superior Court by 47 investors - half of them from the
Inland Empire, according to attorney Patricia Meyer.
Named in the suit are Daniel Heath, 47, of Chino Hills; Larre Schlarmann, 46, of
Carlsbad; and Denis O'Brien, 50, of Yorba Linda. All three remain in Riverside County
jail after being arrested in July. They are charged with numerous counts of securities
fraud and grand theft. John Heath, 78, Daniel Heath's father, also is in custody but was
not named as a defendant in the civil suit.
All four have pleaded not guilty to the charges. If convicted, they face sentences ranging
from 61 years to 200 years, according to sentencing guidelines provided by deputy
district attorney Michael Silverman.
Wednesday's suit says Heath & Associates, with offices in Temecula and Hemet, brought
in at least $178 million from mostly seniors in a scam that played up church and family
ties while the defendants paid themselves generous salaries. Investors want the $10.8
million they put into Heath & Associates returned, plus unspecified damages.
Court-appointed receiver Robb Evans, charged with recovering company assets and
returning money, has said investor losses will be significant.
Meyer said she's not sure where money for her clients would come from but she'll be
looking for others involved in the scheme, which the suit said involved the payment of
early investors with money from later ones.
"We won't know until we have the full story," she said.
The Heath scheme originated in mistakes made by the defendants, who lost money on
many of the investments they funded with money from Heath investors, the suit says.
Attorneys for Schlarmann, O'Brien and Heath could not be reached Thursday.
Heath & Associates got its start in 1993, according to the suit, and misled investors until
April 2004 on several fronts.
The suit says:
Heath told investors he had never invested with a failed company, though several are out
of business or in the red.
Commissions of 10 percent were hidden from investors.
Neither Heath nor Schlarmann disclosed a 1998 order from the state Department of
Corporations telling them to stop selling securities.
Dawn Haggerty of Canyon Lake said she's given up on the receiver returning any of the
$100,000 she and her husband invested in Heath & Associates. Joining the civil suit, she
figured, couldn't hurt.
"If we got even a quarter back of what we invested, it's better than nothing," she said.
Heath & Associates pursued investors at least 47 years old with minimum incomes of
$50,000, according to the suit, luring them with promises of up to 9 percent interest
yearly.
Testimonials were part of the pitch, from a pastor to clients who attested to Heath's good
character, the suit says. The front of the Heath & Associates brochure reportedly included
this quote from Methodist founder John Wesley: "Do all the good you can, By all the
means you can, In all the ways you can."
To seal the deal, Heath, who kept a Bible on his desk, and O'Brien would show off
pictures of their families and quote scripture, the suit says. O'Brien, however, was found
guilty two years ago of misdemeanor charges of annoying or molesting a child and
indecent exposure, according to the suit and Orange County Superior Court records.
O'Brien was appealing the conviction before being jailed in July. His attorney in that case
did not return previous calls seeking comment on the matter.
After O'Brien's indecent exposure and molestation convictions in February 2002, he was
sentenced to 30 days in jail and five years probation, said Mark Macaulay, Orange
County district attorney's spokesman. Being convicted of such crimes would require
O'Brien to register as a sex offender, Macaulay said.
"They tried to portray themselves to a lot of senior citizens as good wholesome
Americans who were church-going people. That was a really important factor to a lot of
my clients. They feel they've been betrayed as well as defrauded," attorney Meyer said.