Judge asks why Cuesta Title was not indicted

July 1, 2015

By KAREN VELIE

During the first day of former North County developer Kelly Gearhart’s sentencing hearing, Gearhart’s attorney attempted to paint his client as a previously honest man whose missteps were a result of the downturn in the market while the judge questioned why Cuesta Title had not been indicted in the criminal actions.

In 2014, Gearhart, now 54, plead guilty to two counts of wire fraud and one count of money laundering in an agreement that reduced the maximum sentence allowable by law from 300 years to 50 years in federal prison. The prosecution is asking for a 135 months sentence and Gearhart is seeking 57 months’ imprisonment.

Both sides are in agreement on most of the issues that impact sentencing guidelines, such as the amount of money Gearhart defrauded from investors in the Vista del Hombre proposed development. However, the prosecution is claiming Gearhart had more than 250 victims who invested in the Paso Robles development while Gearhart’s attorney claims there were only 18 investors directly victimized by Gearhart.

Even though Gearhart allegedly defrauded more than 1,000 victims, the government based its case on only several frauds including Gearhart’s largest, his Vista Del Hombre project in Paso Robles.

United States Attorney Stephen I. Goorvitch told the court he was ready to provide several examples of Gearhart’s attempts to lull investors into believing there investments were secure. Those examples included a May 2008 letter penned by Gearhart and statements Gearhart made the same month on KVEC’s Dave Congalton radio show. On the show, Gearhart said he had not co-mingled funds and that investors monies were secured through property.

Gearhart’s attorney Firdaus Dordi argued that Gearhart had not sent investors a letter in May 2008. Dordi said his client sent the letter in Jan. 2008 as supported by a Tribune article Gearhart attached to his letter. Dordi said that the investors had not lost their security in the property because it had been a partial reconveyance, where the deeds of trust had been transferred out of the investors name through the assistance of a title company.

Wright then looked over at the prosecution and asked why Cuesta Title was not involved in the criminal proceedings.

“Has Cuesta Title been indicted as well?” Wright asked. “I can’t understand why Cuesta is not in this courtroom now.”

Multiple lawsuits have claimed employees of Cuesta Title – now Stewart Title – aided and abetted and/or conspired with Miller and Gearhart. Cuesta Title created false escrows, falsely closed active escrows, and illegally filed clean title reports before placing additional loans on already encumbered properties, according to the lawsuits. In some cases the title companies have paid investors a portion of their losses and in other cases investors lost their claims in court.

Gearhart’s attorney Dordi went on to say that hard money lender James Miller had victimized Gearhart by not providing the developer approximately $8 million in loans the defendant then paid monthly interest payments on.

“He (Miller) is also swindling Mr. Gearhart,” Dordi said. “Gearhart was paying interest on $8 million he never received.”

Judge Wright questioned why Gearhart would pay interest on money that was skimmed off the top by Miller.

Dordi responded by claiming Gearhart was not that bright.

Several times during the hearing, Gearhart’s eyes welled up with tears.

After several hours of arguments, Wright continued the hearing until Thursday at 9 a.m. in order to provide time for Gearhart to testify and for the attorneys to continue arguing their cases.

“To all the victims who traveled some distance, I apologize,” Wright said.