May 14, 2014

Former Atascadero Real Estate Developer Pleads Guilty to Defrauding Investors in Central Coast-Based Real Estate Fraud Scheme

LOS ANGELES—A real estate developer who formerly resided in Atascadero pleaded guilty today to federal fraud and money laundering charges for bilking investors who put money into Central Coast real estate projects.

Kelly Gearhart, 53, who currently resides in Wadsworth, Ohio, pleaded guilty this morning to two counts of wire fraud and one count of money laundering. Gearhart pleaded guilty before United States District Judge Otis D. Wright, II.

In a plea agreement filed late yesterday, Gearhart admitted that he knowingly and intentionally made misrepresentations and omissions relating to the Vista Del Hombre real estate development project to induce victims to part with their money.

Gearhart was initially charged in a 16-count indictment returned by a federal grand jury in 2012. The indictment alleged that Gearhart told investors that their investments—which he called loans and promised would be paid back with interest—were secured by specific lots. However, Gearhart admitted in court today that he sold lots associated with the Vista Del Hombre real estate development project, even though those lots were being used to secure others’ loans. Gearhart further admitted that he used those same lots to obtain bank financing. The plea agreement allows prosecutors to prove at sentencing that Gearhart made additional misrepresentations as part of the scheme.

Gearhart is scheduled to be sentenced by Judge Wright on December 29. The wire fraud charges each carry a statutory maximum penalty of 20 years in federal prison. The money laundering count carries a statutory maximum penalty of 10 years in federal prison. During this morning’s court hearing, prosecutors said they intend to seek a sentence of 135 months in federal prison, while Gearhart’s attorney said he will not seek a sentence below 57 months. However, Judge Wright is free to sentence Gearhart up to the statutory maximum of 50 years in federal prison.

The plea agreement permits prosecutors to seek restitution for victims of the Vista Del Hombre real estate development project, as well as any other project in which there was fraud, a figure that may be as high as $20 million. It is unclear if there is any money available to repay victims.

The case against Gearhart is related to a case against James Hurst Miller, Jr., the former president of the Atascadero-based Hurst Financial Corporation. Miller, who previously pleaded guilty to fraud and money laundering charges, is scheduled to be sentenced by Judge Wright on September 8.

The cases against Gearhart and Miller are the result of an investigation by the Federal Bureau of Investigation and IRS-Criminal Investigation.