Exclusive: Kelly Gearhart pleads guilty

May 14, 2014
Kelly Gearhart and James Hurst Miller

Kelly Gearhart and James Hurst Miller


Developer Kelly Gearhart pleaded guilty to two counts of wire fraud and one count of money laundering in a Los Angeles federal court Wednesday morning. His plea came in a case in which he was accused of stealing more than $100 million from investors in real estate development projects.

In a plea agreement reached Tuesday, Gearhart,53, admitted that he knowingly and intentionally made misrepresentations and omissions relating to the projects to get people and institutions, including nonprofits, to trust him with their money.

Thom Mrozek, the public affairs officer for the U.S. Attorney’s Office, issued a statement in which it said that his office would seek a lengthy sentence.

“We’re pleased to conclude this case that has had an impact on so many victims. With Mr. Gearhart admitting his guilt and acknowledging that he bilked investors out of millions of dollars, he now faces a long stay in a federal prison,” Mrozek said. “We will ask the judge to send him away for more than 11 years, which we hope will send a clear message to victims and other conmen that we are committed to seeing justice served.”

Gearhart agreed to plead guilty to three charges in connection with the Vista Del Hombre project. He agreed to pay restitution to his victims of that scheme up to $20 million and to be truthful when dealing with the court, the probation department and pretrial services. In exchange, prosecutors dropped 13 of the 16 felony charges. In court, the prosecutor said he will seek a sentence of 135 months in federal prison.

But, United States District Judge Otis D. Wright II is free to sentence Gearhart up to the statutory maximum of 50 years in federal prison. Gearhart is scheduled to be sentenced by Judge Wright on December 29.

Gearhart and James Miller, the former president of Hurst Financial, defrauded more than 1,200 investors of more than $100 million in an alleged Ponzi scheme. Gearhart bilked investors who put money into Central Coast real estate projects and then siphoned off the monies for other purposes including investing in Pejihota, a company working to build a large Indian gambling casino on the northeast side of Paso Robles.

Along with the other three members of Pejihota , attorney Grigger Jones, Chris Molina and Dan Phillips, Gearhart signed a contract with the Salinan Tribe of San Luis Obispo and Monterey counties to fast track the tribe’s application for federal recognition with the goal of eventually building the casino.

Marion Warner, Gearhart’s common-law stepmother of 35 years, told CalCoastNews that Gearhart had boasted of his master plan for financial freedom. He planned to build his empire on borrowed money stashing funds, properties and jewels until the perfect time to file bankruptcy.

That, however, was before Pejihota entered into an agreement with the Salinan Indians. It was an agreement that Gearhart and his partners projected would bring them earnings of approximately $600 million in profits over the next 50 years, according to Pejihota records recovered from a search of Grigger Jones’ trash can.

But, Gearhart’s development fraud scheme drew the attention of authorities and he was arrested before his dream of a North County casino could be realized.

Gearhart’s relationships with community leaders in Atascadero and accomplices who included a lender, a title officer and a property appraiser, provided Gearhart with the appearance that he was an upstanding civic-minded citizen when, in fact, he was breaking state and federal laws.

Other than Gearhart and Miller, no one else has yet been charged for their participation in the fraud.

“As it stands right now, I do not anticipate other individuals involved in this scheme being prosecuted,” Mrozek said while noting that the decision not to prosecute others could change in the future.

According to Gearhart’s plea agreement, his wife Tamara Gearhart will not be prosecuted in the scheme to defraud.

In 2011, Miller agreed to plead guilty to charges of fraud and money laundering in a plea agreement in which the court agreed to grant Miller’s daughter Courtney Brard immunity, according to court records. Miller is scheduled to be sentenced by Judge Wright on September 8.

Gearhart’s questionable financial dealings were brought to light in a lengthy, ongoing series of articles by CalCoastNews starting in 2008. The developer threatened to sue the news website following the publishing of articles outlining his questionable investment activities in one particular project, the Vista del Hombre golf and business park located on the outskirts of Paso Robles. That lawsuit never materialized, although the website received letters from Gearhart’s attorneys, as well as Gearhart’s personal denial and threats voiced on Dave Congalton’s Home Town radio show on KVEC920.

During that same time, the area’s local daily newspaper, The Tribune, launched an editorial effort venerating Gearhart and attempting to discredit CalCoastNews. Editors at New Times, the weekly, opted to ignore the developing scandal entirely.

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If you are going to start a thread on the planning department, then start with the building permits. First ask yourself, how could Gearhart’s projects not have building permits yet after the Gearhart debacle begins unraveling, those missing permits miraculously appear with forged signatures of City officials? Who snuck forged building permits into City files? How does this happen? How are those responsible still employed at City Hall? All valid questions.

Very simple. He relocated to Indian Wells.

Atascadero city staff, especially the planning department, catered to gearhart. One would have thought gearhart was head of the planning department or city manager – staff did what he wanted most of the time. Wonder if he will continue to give them directions from behind bars.

So what kind of time will he get for perjury in the bankruptcy case and will it run concurrent?

After 24 hours of extensive consultation with McClatchy corporate, local political and business leaders, and their advertisers, The Tribune was granted permission to publish this story today.

I canceled my Trib subscription 6 years ago, but a $20 tip to the carrier every Xmas keeps it landing on my doorstep every day.

Given the recent sentences for $100M white collar crimes, this dude got off very light. Whether he comes out old and frail or tanned and buff will depend entirely on where he serves.

Likely it will Club Fed or similar.

….Our tax dollars at work! We have the best justice system money can buy.

From Citizen of the Year in Atascadero to Belle of the Ball in Victorville.

Wonder which Federal Prison he’ll be doing his time in? Might be close to Wadsworth Ohio.