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.


  1. Scarlet says:

    I have been trying to cancel my Trib subscription for 3 weeks because of their shoddy & irresponsible “reporting” and the papers keep coming. Is anyone else having this problem? Is this done to falsely inflate subscription and/or cancellation numbers or is it simply incompetence?

    Like or Dislike: Thumb up 26 Thumb down 2

  2. Cindy says:

    “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.”

    LOL, I was listening to the show on KVEC that night in 2008 and I recall those threats. “Lies, Lies all Lies. I’m gonna call my lawyer and SUUUUUE YOUUUUU”. Whenever I hear the name Gearhart, that’s the first thing I think of and then I laugh. Then I think of all those investors especially some of the elderly ones and I stop laughing.

    Well-loved. Like or Dislike: Thumb up 37 Thumb down 0

  3. hijinks says:

    “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.”

    Touche! Love it — rub it in. Both of them are useless rags. Why’s anybody read them?

    Well-loved. Like or Dislike: Thumb up 41 Thumb down 2

  4. pasodowny says:

    “During that same time, the area’s local daily newspaper, The Tribune, launched an editorial effort venerating Gearhart and attempting to discredit CalCoastNews.”

    The Tribune. The endorsers of Hill, Gibson, and Caren Ray. The defender of Jan Marx and Sheriff Ian. The protector of status quo in Morro Bay. The embarrassment of our community–the SLO Tribune. Thank you CCN for your continued excellent work.

    Well-loved. Like or Dislike: Thumb up 40 Thumb down 3

  5. Derrik Dunbar says:

    Cal Coast news is the only news agency willing to uncover the seedy goings on in SLO, from government mismanagement to “upstanding citizens” swindling others out of millions.
    An example is one Phyllis Madonna. If you listen to that goof Jeanette Trompeter, you’d think Phyllis was the second coming of Mother Theresa instead of a someone quite willing to bilk citizens of San Luis County out of $7,000,000. Good old Phyllis sold 17 lots contaminated with oil on San Luis Drive in 2004. When the contamination was discovered, the City of SLO properly stopped development until the contamination could be evaluated. The poor sucker who bought the lots tried to get Phyllis to take the lots back, but she told him to shove it. It turned out that Phyliss and Alex’s construction company had knocked a hole in a pipeline in 1982 and spilled thousands of gallons of oil down San Luis Creek and into the 17 lots. It was front page news then, with protests in front of the pink monstrosity. Somehow Phyllis didn’t ever know about this..or so she claims.. even though the State sued her and Alex and they settled up for $55,000 in 1982.
    The story gets better, because all of the money used to purchase the 17 lots came from Estate Financial. The lots couldn’t be built on, so the developer let them go to foreclosure, Estate Financial went belly up, and the people that invested in Estate got a Christmas Goose. Only one making out was dear old Phyllis.

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    • Cindy says:

      Derrik, I’m not buying your story. Seems to me that in consideration of $7,000,000, ES would have sued and easily won especially if the events were as you have presented here and particularly if Phyllis had prior knowledge of the contamination.

      Hot debate. What do you think? Thumb up 15 Thumb down 20

      • hijinks says:

        Gotta have money to sue. How do you do that if you’re broke? Justice is only available for some, not all.

        Like or Dislike: Thumb up 22 Thumb down 2

      • Derrik Dunbar says:

        Hi Cindy;

        How was EF going to sue? It would have had to have been the Bankruptcy Trustee, and she wasn’t interested, for whatever reason.

        If you don’t buy my story, go to the courthouse and look up case CV 090210, or go to the Regional Water Quality Control Board located by the airport, or call the HAZMAT department of the SLO City fire department.

        Better still, go to the Paso Robles branch of the SLO Superior Court on September 2nd , 2014. Phyllis and her army of lawyers will be there, unless they try to claim she’s too feeble to attend. Her son-in-law and daughter will be there, and so will all of the players, and there wil be a lot of them. Phyllis will doggedly regurgitate the story that she didn’t know there had been a spill on her property ever, even though it was 100 feet from her house and front page news and she is going to be confronted with a mountain of evidence showing she had to know unless she was in a coma.

        I realize this is hardfor many to to believe, but that’s my point. I looked at the microfische at the Court. You would like to believe Madonna is a sweet old lady, but she fits right in with Gearhart, Madoff, Ken Lay, etc. All would step on your face for $$, all were held in high regard, and now Madonna’s true character is going to be revealed. The shame is that no matter how this case turns out, the EF investors got a beatdown from dear old Phyllis.

        And it was closer to $8 million than $7.

        Like or Dislike: Thumb up 16 Thumb down 3

        • madmax says:

          Derrik.
          It seems like the ESTATE FINANCIAL VICTIMS are the ones that should be
          at the trial on September 2nd. If I were in their shoes I would want to know the true story on a loss this size. If what your saying is true there is another yet another skunk in our backyard.

          Like or Dislike: Thumb up 10 Thumb down 0

          • Derrik Dunbar says:

            I’m puzzled why anyone would give me a single “dislike” thumb, much less 20% of the total feed back . I assumed that readers viewing this site would be interested in knowing the true character of public figures in the SLO area. Every single word I posted is true, and there are gobs of facts showing Madonna to be ethically challenged that I left out of my posts in the interests of brevity.
            I guess people need their heros, but doesn’t anyone recall Alex Madonna publicly threatening the City by saying he would start a pig farm on land adjoining highway 101 if he didn’t get zoning changes back in the 70’s? These people pay for good publicity and buy their “friends” from KSBY lunch at the garish eyesore to have puff pieces put on the air, but make no mistake, Phyllis Madonna would cut the citizens of SLO County off at the ankles if there was $10 in it for her.
            Again, if you don’t believe me, post facts showing I’m wrong about 1)Madonna selling $7.25 million dollars worth of building lots that couldn’t be built on because her construction company caused a monster oil spill on that property, 2) her refusal to take the lots back, saying instead “sue me”, and 3) Estate Financial investors taking the loss.
            I won’t hold my breath waiting for such a post.

            Like or Dislike: Thumb up 14 Thumb down 4

            • madmax says:

              Derrik,

              My question is why doesn’t some investigative reporter from one of the other local news media do the research you have laid out. Is it that the Madonna name is untouchable or are they just content with printing
              fluff pieces. It sure appears to this point none of them are looking for
              a job with 60 minutes. Shame on them for not having the fortitude to
              check it out and once they see the facts taking the story on.

              Like or Dislike: Thumb up 8 Thumb down 0

              • TaxMeAgain says:

                Madmax, the local news media is hesitant because Madonna advertises and pays their bills.

                Derrik, you have me convinced. One time I had the Christmas dinner at Madonna. I have never had a more disappointing meal in my life. It’s a pure profit driven machine.

                Like or Dislike: Thumb up 6 Thumb down 0

  6. wineguyjc says:

    Wow, he plead a deal! So did he make a deal to protect his son and his wife? He scams a $100 million and has to pay back $20 million. Maybe he will donate some money to cal poly like Al Moriarty did? What about all the interest he made on the money that he stole? The interest alone covers the $20 million. The Gearhearts are all crooks, send them back to Oklahoma where they belong.

    Well-loved. Like or Dislike: Thumb up 48 Thumb down 1

    • chickenboo says:

      Ha! Oklahoma doesn’t want him! He’s in as much trouble back there as he is here. He should be tried and sentenced for his crimes there as well as here. Maybe then a LIFE sentence would be in order.

      Like or Dislike: Thumb up 26 Thumb down 1

    • Salinan9 says:

      He probably only plead guilty as the deal he got was pretty good actually – 16 counts dwindled down to 3? Gee, what a deal. Why would anyone even give him that? Unless he named some names of others that they can now go after…..hmmm.

      Like or Dislike: Thumb up 16 Thumb down 0

      • SmilingJack says:

        Yeah, I agree. Some of his tribal friends should be worrying right about now. They think it’s cooled off for them since “Grigger” made a deal with the Bankruptcy court concerning contributing some money from the so-called casino that they’ve been telling everybody that they’re going to build when the tribe gets Federally recognized. That isn’t going to happen so the current investors they’ve been telling that story to should see if they can get a refund on their money. That’s probably what the U.S. Attorney was talking about when he said “for now”. We’ll see how that goes. I don’t think they are off the hook yet.

        Like or Dislike: Thumb up 17 Thumb down 0

  7. PaulJones says:

    I will listen to KUHL. KVEC has joined the ranks of those who believe attempting to tarnish the reputation of CalCoastNews reporters and supporters is a way to stop reporting of public officials and your so-called pillars of the community.

    Without CCN, this story would not have happened.

    A small group of people who are primarily politicians attempting to control the media, competitors for advertising or people angry about a specific story have started several online sites and placed posts throughout the internet making vicious claims. Examples are that Karen Velie killed her daughter, Dave Congalton is a pedophile, Dave’s wife used to be a man, Karen Velie is blackmailing Sam Blakeslee, Daniel Blackburn is an iv drug user and the weirdest of all – Josh Friedman is an anti-Semite.

    They have stated that their goal is to destroy CalCoastNews and run the reporters out of town.

    And KVEC manager Ron Roy responds by barring Karen Velie from KVEC to protect the station from lawsuits, after threats from CAPSLO and others. Disgusting. John Ashbaugh and a slew of other blind CAPSLO supporters revel in the win and now support KVEC for effectively baring the reporting from being aired. John will now go on Dave Congalton’s show because they barred Karen Velie. Talk about undemocratic.

    I suggest a ban of listening to KVEC and other El Dorado stations until this changes. Also, call the station manager Ron Roy at (805) 545-0101 or email ronroy@edbroadcasters.com. or contact the president of El Dorado, Jason Wolff, at (323) 964-5300.

    Well-loved. Like or Dislike: Thumb up 77 Thumb down 12

  8. Robert1 says:

    If I remember, he has had a child in the last couple years. The child will have to visit dad at the gray bar motel and he won’t really know his father. I bet they had this kid as a ploy to keep Mrs Thief out of jail.
    Eleven years seems very light for the damage, 20-40 seems more appropriate.

    Well-loved. Like or Dislike: Thumb up 50 Thumb down 3

  9. Karen Velie says:

    I will be on Andy Caldwell’s radio show Thursday at 4 p.m. to discuss this story. Tune in to KUHL at AM 1440.

    Well-loved. Like or Dislike: Thumb up 56 Thumb down 9

    • obispan says:

      Why would Andy Caldwell have a guest that consistently rails against Gearhart’s free-market capitalism? Buyer/investor beware. Is Andy going to support GOVERNMENT REGULATION?

      Like or Dislike: Thumb up 6 Thumb down 27

      • Cindy says:

        sarcasm I assume ?

        Like or Dislike: Thumb up 4 Thumb down 3

      • pasoman says:

        Obispan,

        What Gearhart did had nothing to do with a free market capitalisim. What he did, as has now been proven, is theft.

        Like or Dislike: Thumb up 21 Thumb down 1

        • chickenboo says:

          And what perfect timing. I wonder if the jury’s verdict would have been different on Cuesta Title had Gearhart ‘confessed’ earlier on. What a huge joke. Too many ‘big dogs’ in this fight.

          Like or Dislike: Thumb up 8 Thumb down 0

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