Exclusive: Kelly Gearhart pleads guilty

May 14, 2014
Kelly Gearhart and James Hurst Miller

Kelly Gearhart and James Hurst Miller

By KAREN VELIE and DANIEL BLACKBURN

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.


56 Comments

  1. steve o. says:

    Not that there will be money that Gearhart will ever pay to those that invested but I have one question. With over $100 million taken from investors why do only investors from the Vista del Hombre project have the possibility of seeing a penny? Let’s just say that $1 million is recovered, does it seem right that investors of VDH get $.05/$1 when the rest of the investors get $0 just because they happened to invest in a different project? Shouldn’t all investors get $.01/$1 instead?

    Regardless, I hope he finds happiness in being someone’s wife.

    Like or Dislike: Thumb up 30 Thumb down 2

  2. SmilingJack says:

    Federal time doesn’t have early outs for good behavior. It’s too bad the rest of the Pejihota bunch will get a break, for now anyway. They told the court they would pay some of the proceeds from the casino profits to make up for the scheme they were pulling with Mr. Gearhart. At least that was what they said in Bankruptcy court. So we’ll see how that goes, since there isn’t going to be a casino. Pretty interesting, to say the least. Maybe that’s what the U.S. attorney means, “for now”. Don’t see how that is going to happen.

    Like or Dislike: Thumb up 25 Thumb down 1

    • obispan says:

      “Federal time doesn’t have early outs for good behavior”. Ya sure? Haven’t done any Federal time lately (ok, any time at all) but it looks like 87% currently with proposals to decrease that for “white-collar” criminals constantly floated. Money stashed divided by years probably pencils out pretty well. Kelly’s just going to have to delay retirement as have the victims of his scams, but at least he’ll have plenty of money once it happens.

      Like or Dislike: Thumb up 11 Thumb down 2

  3. Pelican1 says:

    The fact that has taken so long, clearly represents cruel and unusual punishment to all affected by his misdeeds.

    Well-loved. Like or Dislike: Thumb up 36 Thumb down 1

  4. Rawhide says:

    Without CalCoastNews
    Kelly Gearhart would still be living in Atascadero and bulking additional investors out of 100’s of millions of dollars more and putting the monies in hidden bank accounts in the (pun) Salinan islands.

    It seems Gearhart is receiving SPECIAL privileges from the Prosecutor..!
    In a plea agreement prosecutors dropped 13 of the 16 felony charges…!
    This is total Bull Shizen…
    135 months (11.25 years — minus good time credits = approx… 5 years) is NOT enough time in Federal Prison for ruining some many people’s lives.

    So, X-Corrections Officer Kelly Gearhart, who was a “that-a-boy”, “in-the-car” Correctional Officer at the California Men’s Colony in SLO CA, and who received special treatment / privileges / for doing special favors, has agreed to pay restitution to his victims of that scheme up to $20 million dollars.

    That suggests he still has Millions of bilked investor’s money hidden away somewhere…But where?

    Well-loved. Like or Dislike: Thumb up 49 Thumb down 3

    • Rawhide says:

      language correction…

      135 months (11.25 years — minus good time credits = approx… 5 years) is NOT enough time in Federal Prison for ruining
      so
      many people’s lives.

      Like or Dislike: Thumb up 16 Thumb down 3

      • Cindy says:

        I think you can take some solace in the knowledge that Gearhart will have to do the full 11.25 years of his prison time. Federal Prison doesn’t have early release for good behavior like the State does. The down side is that Federal prison time is a piece of cake in comparison to State prison.

        Like or Dislike: Thumb up 12 Thumb down 2

  5. mbactivist1 says:

    Nice work CCN, and nice work by that investor discussed in your 2008 story, “Dumpster Chronicles: Web of Deceit”

    This just goes to show that persistence can pay off, and people can do something about the dishonest dealings that are so persistent in this county.

    Hot debate. What do you think? Thumb up 36 Thumb down 4

  6. Jorge Estrada says:

    I look forward to seeing this movie when released. I’ll get my senior discount and the star with get his 13/16th discount.

    Like or Dislike: Thumb up 22 Thumb down 2

    • chickenboo says:

      Ha! Jorge, Kelly’s story has already been written! Look at the beginnings of Atascadero and how our very own founding father ended up in prison for this very same type of crime. He served a short amount of time, and was welcomed back to Atascadero when he got out, with a glorious Bar-B-Q! REALLY?! History apparently really does repeat itself. I wonder how many of us will still be here in 5+ years to see the grand home-comming of this low down thief. I’m sure his buds on the outside will keep the coals warm……

      Like or Dislike: Thumb up 16 Thumb down 1

      • Cindy says:

        Honestly chickenboo, you might want to do a little homework before you trash EG Lewis. He didn’t bilk anyone, he was foreclosed on during the depression because the San Francisco bankers refused to work with him. He hadn’t pocketed any funds and the land was all here that he had financed, it just wasn’t selling fast enough at that time. He actually went to prison for postal fraud. He was selling adds for land in Atascadero in magazines that he should have been paying the full mailing postal rate on. That’s right, as ridiculous as it is, that is what he went to prison for.

        EG Lewis was given a party because the people loved him and knew that he got a raw deal. Let the poor man rest in peace, he never hurt or defrauded anybody except maybe the post office. pffft……..

        Like or Dislike: Thumb up 13 Thumb down 3

        • chickenboo says:

          Like Gearhart, Mr. Lewis had a loyal following of friends who believed he was just a good ol’ boy who was sadly maligned. Well….SOMETHING went wrong with his management of other people’s money that made the feds send him to prison. Gearhart has a very loyal following still. His friends still believe he is a good guy who would surely have paid the investors back if they had just been patient and not so greedy, and given him more time and money to complete his dream of the casino. There will be folks who, like with Lewis, will believe he got a raw deal. It all depends on what side of the money you are on and how bad you got hurt. Lewis did alot of good things for this town, and so did Gearhart.Some people choose to only remember those good things. None of us will be around to see the next “Lewis/Gearhart” situation, but it might be something for the upcoming generation here to keep an eye on. Gearhart will be remembered differently, just like Lewis, depending on what ‘camp’ you are in. Folks who will have no reference will have to choose which side they believe.

          Like or Dislike: Thumb up 6 Thumb down 7

  7. scoopone says:

    Eleven years will probably mean 5 1/2 actual iron-bar time…not bad seeing that he’s beenfree from this court hearing for nearly five years…..in this instance, crime does pay. A
    free man by age 58 and free to do it all over again. The victims should demand a life
    sentence of 30 years plus!!

    Well-loved. Like or Dislike: Thumb up 46 Thumb down 2

    • Still Standing says:

      And they need to throw a big net out and scoop up all the others that were involved!
      Yeah, 30 years sounds more appropreate!

      Well-loved. Like or Dislike: Thumb up 41 Thumb down 1

    • kayaknut says:

      You know he won’t have to do it again, no doubt he has plenty of money hidden away, his wife is likely helping with that.

      Well-loved. Like or Dislike: Thumb up 48 Thumb down 2

    • pismo20 says:

      Federal prison sentences do not work like state prison, generally a full sentence is served.

      Like or Dislike: Thumb up 25 Thumb down 4

  8. Still Standing says:

    ” As it stands right now, I do not anticipate other individuals involved in this scheme being prosecuted” …….. I sure do hope that decision changes! They are admitting right there that there are others that they KNOW were involved too, stealing and robbing families of their last dime! I think every stinking rat should spend time locked up! Not that it would bring the money back, but at least the families that put their trust in these scum bags could feel a little restitution!

    Well-loved. Like or Dislike: Thumb up 38 Thumb down 1

    • chickenboo says:

      I agree.EVERY stinkin’ Rat that was running along side Kelly needs to be gathered up and thrown in the slammer. Justice needs to be served. Why do these wanna-be scumbags get to sneak back into the darkness. Indeed Mr. Kelly sure seems to be a gallent man. Fessing up to one or two of his crimes so his partner in compliance, Wife, gets to go free, plus he protects the other big fat pig who was right there with him, oinking and stealing every cent he could take. Really? You know how you are, you bloody thief who calls himself a “Christian man”. How can you show your guilty face around town?

      Like or Dislike: Thumb up 33 Thumb down 0

      • Still Standing says:

        Hmmm, I do belive I know to whom you refer! Let the light shine on those who hide in darkness!

        Like or Dislike: Thumb up 22 Thumb down 0

        • chickenboo says:

          Yup! That’s the one! And indeed, “The Light” will shine upon him sooner or later, in one way, or another. He will truly have no place to hide, like the roach that he is, trying to scuttle under the woodwork.

          Like or Dislike: Thumb up 15 Thumb down 0

  9. cliffclaven says:

    Good journalism and hard work by the folks at CCN.
    Thank you.

    Well-loved. Like or Dislike: Thumb up 64 Thumb down 5

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