Fraud lawsuit filed against Gearhart, Hurst

May 6, 2008

By KAREN VELIE and DANIEL BLACKBURN

Local investors are alleging they were bilked out of millions by Hurst Financial and developer Kelly Gearhart.

David Rios and Murray Powell filed an 11-count lawsuit Tuesday in San Luis Obispo County Superior Court. Allegations include fraud and civil conspiracy by Hurst Financial president Jay Hurst Miller, Hurst loan officer Courtney Brard, and Gearhart, and claims they misled investors and misappropriated funds.

Gearhart is alleged by investors and others to have co-mingled finances, paying from one investment fund to construct another.

The complaint revolves around a construction loan by hard money lender Hurst Financial to Gearhart for the erection of a commercial building at 5730 El Camino Real in Atascadero. On Oct. 12, 2006, Gearhart, through Hurst Financial, received $2 million from 17 investors to finish the project. That loan had an April 12, 2008, loan maturation date. The property is currently a vacant lot.

Miller and Gearhart did not respond to UncoveredSLO.com’s requests for comment.

Hard money lenders specialize in short term, high interest construction loans that are often used as bridges to help a developer finish a project. Loans are based on the value of the underlying asset rather then the borrower’s credit rating. These kinds of loans are primarily funded through private investors.

Lenders lure investors with promises of high interest, low loan to value rates, and assurances that funds are placed into secured accounts with payments provided to developers as the work progresses.

According to the claim, Hurst wrongly asserted funds would be disbursed as improvements were made to the project. Hurst doled out the entire construction fund to Gearhart even though no work had been done on the property.

Miller admitted this in an April 18 e-mail to Powell regarding the project:

“After reviewing this loan within our escrow trust account, all net proceeds from Cuesta Title Co. after the purchase of the property and points paid to Hurst Financial went to Morro Road Homes LLC (Gearhart), in good faith,” Miller wrote in the e-mail obtained by UncoveredSLO.com. “After doing business with Gearhart Development for 23 years, I have done many of my loans in the same nature. I obviously know we are under-secured at this time, due to the building not being constructed.”

Rios and Powell are seeking recovery for all investors in the loan for damages of $2 million, interest fees, cost of the suit, and unspecified punitive damages.

Tags:, Atascadero, fraud, Gearhart, Hurst Financial, lawsuit


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Stefan

By: Anonymous on 5/7/08

Wow, some show. Looks like Kelly is pretty arrogant and very loose with the truth. And his refusal to answer pointed questions about his funding machinations throws doubt on his whole trip.

Let's just hope, despite his many ethical shortcomings, that he can pull a rabbit out of a hat and make these projects work.

My contacts tell me there has been so much graft and illegal fiddling with your money (ponzi schemes) that some magic will be necessary for a happy conclusion!

If you doubt the doubters just go by your project, see what it looks like, and ask Kelly/Jay where the money is. Don't be brushed off, insist on knowing where your money is. You'll be brushed off…


By: Anonymous on 5/7/08

Come on Dewdog.. Say something we can believe about your buddy. We know that you are in real estate and trying to be fair while not hurting who I think is a business buddy of yours.

By: Anonymous on 5/7/08

Why is it that every time Kelly screws up he tries to blame a government agency. He has been in development a long time and if he isn't incompetent then why doesn't he understand the permitting process yet? By the way, he does have to build a sewer to the Paso Robles City extention. Its a big job and it's not done and he hasn't even applied for the permits. Check with Paso Robles Community Development Dept yourself. I did..

By: Anonymous on 5/7/08

Market Down Turn "my ass". This is about negligence and borrowing from Peter (literally) to pay anonymous Paul.

By: Anonymous on 5/7/08

Anyone know who the other guy with the Mancrush on gearhart (dewdog) is?


I wager he is also in the real estate business.

By: Anonymous on 5/7/08

Hey all, the guy that called into Kelly and supported him who was named Mike is no other than Mike Sherrer from Peabody & Plumb. Give them no business if you plan on selling or buying a property. They can't be trusted.

By: Anonymous on 5/7/08

Thank You to Karen and Dan and Dave Congalton for bringing home the facts.

By: Anonymous on 5/7/08

The investor's (lenders to Hurst) have lost. Jay had no right to pay everything up front to Gearhart. It was surposed to be issued in progress payments. Hurst was irresponsible with my "hard earned" money. Gearhart is clearly avoid us and lying about the facts. I herad him lying on the Dave Congalton Show.

By: Anonymous on 5/7/08

Karen and Dan are Mohamad Ali..

By: Anonymous on 5/7/08

Kelly lost BIG TIME… I heard the show Kelly. What a liar you are. I hoped otherwise but it wasn't to be. I lost too.

By: Anonymous on 5/7/08

I think Kelly will be caught up with the FBI investigation. He might be logging onto to his "fatboy" (his e-mail handle for those who don't know it) from prison.

By: Anonymous on 5/7/08

Gearhart just made a fool of himself. He also tried to intimidate people. What a lying thugg.


Stefan

By: Anonymous on 5/7/08

Gearhart is GUILTY AS HELL. I heard him on the radio. Now I know the TRUTH. What a lying SOB

By: Anonymous on 5/7/08

Well I guess this Law Suit doesn't exist according to KG

By: Anonymous on 5/7/08

Wait a sec….if I am Kelly, how am I on the radio right now??? WEIRD!!!

By: Anonymous on 5/7/08

I have a picture in my mind. Of all these lenders and developers sitting around the bar. They're all there Josh, Karen, Charlie, Jay, Rod, Allen, Kelly, Royce, Linda and a host of others some whose names have not been mentioned yet. They pass the hat, each take a straw. Each displays his with pride untill we get to Gearhart as he raises his tiny little straw. Cheers all around Kelly gets his ass kicked this week. Everyone else is safe for another week. I see a potential reality show out of this.

By: Anonymous on 5/7/08

Folks,


I have no dog in this fight, so I can recomend things objectively. Since this is a single project, not too many people involved. Get a prelim title on the policy see what is owed on it and you can foreclose. I don't how your interest is recorded if fractional or on teh broker's name, you can file a motion in court for "lis pendense" until things get sorted out. See if there are any plans or entitlements approved. You will loose portion of your investment, but not all. So get togather and act soon.

This seems to be a less complecated issue than EFI.

By: Anonymous on 5/7/08

I see Kelly is already blaming the city and everyone else. I see he is also calling all this info lies. Perhaps he'll cough up the money then and prove that this all lies.. Where is the money Kelly? Thats the bottom line. I don't want to hearany of your cry baby bs. Where is the money?

By: Anonymous on 5/7/08

Ok so your not Mr. Powell, just another angry man with nothing better to do with his time….

By: Anonymous on 5/7/08

to Get a life


I'll bet they have more important things to do. What would you do if all this garbage was falling in on you.

By: Anonymous on 5/7/08

to atowner


SARCASM atowner. More power to Mr. Powell its amazing more people have not done the same. You are however wrong I am not Mr. Powell and from what I see I don't think he is blogging at all. You sir have no idea who I am.

By: Anonymous on 5/7/08

last post was from me…

By: Anonymous on 5/7/08

Pretty sure Jay and Kelly both have more important things they are doing than posting blogs on this site. I might as well be reading the national Enquirer since none of these are solid facts…but hey, cheap entertainment! Now I just cant wait for a blog about Wolfboy to show up on here!

By: Anonymous on 5/7/08

Hey Kelly and Jay. Why don’t you sign these moronic comments with your real names. What are you afraid of?


Stefan

By: Anonymous on 5/7/08

to Linda


What you need is a copy of the closing statement. These type of loans fund the land 100% all the time. Get the closing statement. If you are an investor this document should have been provided to you.

By: Anonymous on 5/7/08

atowner,


You state:


"Everyone needs to get their facts straight"


I believe those were your exact words on Congalton's show last week, right Kelly?


Why are you here one hour before your radio appearance posting insults to those who have loaned you their money and attempting a weak defense of yourself under a false name?


That doesn't show much class or courage, does it?


You are fond of telling people to "get their facts straight" and accusing them of "publishing false information", but you take evasive action, run and hide like a little girl, when you are pressed for actual facts. Is that because the truth is not your friend, and will in fact expose you to civil and criminal prosecutorial action?


Good luck on the radio today.

By: Anonymous on 5/7/08

To Insider:

You are on the right track except for a couple of items. My understanding from talking to some investors is that the loan was for the construction of a commercial building. The property was supposed to have been purchased previously and construction loan proceeds were not to be used for the land purchase. Also the construction loan proceeds should not be used to pay property taxes (which haven’t been paid anyway) or to pay interest on the loan. Paying interest from construction loan proceeds is usually not allowed unless specifically agreed to in the Loan Agreements which the lawsuit says were apparently never executed and given to the Investors. Pretty sure not much if any insurance was paid on a piece of vacant land. So subtract at least $360,000 and $500,000 for a total of $860,000 from your calculations. Now we are back to about $1,800,000 or more. WHERE IS THE MONEY?????????????

By: Anonymous on 5/7/08

to insider:

funny how you "know so much about this case" but dont know who Mr Powell is…..you REALLY must be stupid if you are asking who mr powell is right under this article..good cover up-nice try

By: Anonymous on 5/7/08

to Mr. Rick


DITTO!

By: Anonymous on 5/7/08

to Get a life


Is that you Kelly, or you Jay, or you dewdog? Sure sounds like one of you.


Stefan

By: Anonymous on 5/7/08

SLO Bear,


You state:


"the victim shares in the culpability"


"luck wasn't the reason I did not lose any money with EFI, Hurst, or 21st Century."


"I am telling the truth, and sometimes the truth isn't what we like to hear."


"It seems the Housing Bubble created more than a few bull market geniuses. It is now time to see the Emperor has no clothes"


"If you came to the conclusion I am a lackey, I'm not surprised you were swindled."


You also posted other 2nd grade level playground insults under other names.


You then state:


"Hey folks – I'm on your side!"


Your bloated ego and exagerated sense of self importance evidently compels you to come here and parade your ignorance of the root cause of the issue being addressed here: Criminal fraud.


The housing bubble did not cause Karen Guth to commit intentional criminal fraud against both borrowers and lenders.


The housing bubble did not cause Hurst to advance 100% against projects 0% complete.


The depths of your ignorance of these specific cases which you are here commenting on is astounding, yet you are evidently unable to resist any opportunity to gloat, brag, boast, scold, and hold yourself up as The Smartest Guy In The Room.


Since "the room" you normally occupy, your blog, is an empty echo chamber, your over-arching need to be heard drives you here.


Aren't there already many other housing bubble blogs you can post to where you can wrap yourself with the warm blanket of Utter Superiority?


By: Anonymous on 5/7/08

to atowner


I don't see any blogs from a Mr. Powell. Who is this Powell you speak of.

By: Anonymous on 5/7/08

to Get a Life


If the developer and lender are so in touch with how difficult it is to get permits and how long it takes to get a project off the ground why in the H would they be closing big dollar loans on properties they can not break ground on. If they are closing loans on projects they don't have permits on and they know how difficult it is and how likely it is they may not be able to break ground for some time to come then they would have a separate line item in the budget to pay the interest due for the next year or so while the whole thing sits. Right?

By: Anonymous on 5/7/08

Does Mr. Powell's employer know how much time he is spending on this blog???? Looks like he is getting paid to vent his anger

By: Anonymous on 5/7/08

investors haven't lost their money they are just not receiving interest payments. I am sure everyone is working hard to get this back on track


Stefan

By: Anonymous on 5/7/08

You know what, if the cities werent so HARD to deal with, the projects would already be complete. All of you that have NO compassion must have never developed, or worked with a developer to see the hardships they go through to get permits, plans approved, etc etc…


Those things are expensive…fees add up and things get backed up then more fees add up. delays in the project means more fees


If any of you have any knowledge about this, you would know that. A first grader could figure that out!


Thousands of dollars were being waisted monthly out of pocket because people are jealous of those that are successful, and try to ruin projects that will improve the community and neighborhoods


Why dont you all pull your heads out before you try to bring down people that are trying to improve the community and make it a better place….Spend your money on a good cause, try to cure cancer, donate to a charity, not waste your money on ruining peoples life (and for those who say their lives are ruined because their whole nest egg was invested…maybe next time before you invest your WHOLE retirement in a high risk investment, think it through…dont be greedy!)

By: Anonymous on 5/7/08

If you want to hear true hard facts listen tomorrow night when Mr. Powell is on the radio. Call in, he would love to give correct information to all of those you think Mr. Gearhart is their hero. How sad it is that so many people are losing everything because of crooks like Gearhard and Miller!

By: Anonymous on 5/7/08

two hours to go. Will he show?

By: Anonymous on 5/7/08

I think this article is correct with it's information. I just wonder how the investors will recover? Does anyone know how?

By: Anonymous on 5/7/08

to atowner


Loans were made. Funds were turned over to the developer. The projects are not complete or have allmost no construction. The developer has stopped making payments. And dogdoo or I mean dewdog and the Slowwww Bear are defending the developer. Whats inacurate please clarify.

By: Anonymous on 5/7/08

funny how when the 12%

interest is coming in no one questions where that money comes from or what project…as soon as the money stops is when all this arises. I too have money invested with a project, and hope to get it back, but I also have made enough for me to hold tight for a few months. All involved in the situation are motivated to pull together and get back on their feet. The downturn in the economy is making this situation hard. Spending money on lawyers is just wasting away our money. Its gotta be very tolling on everyone involved, especially when people throw around inaccurate accusations. Everyone needs to get their facts straight, especially people writing in on this website. Rumors are flying and if this website ever wants to be known for its credibility, they should get correct facts before they publish false information.

By: Anonymous on 5/7/08

to Carol Anne


Assuming Mr. Gearhart was making the interest payments which he probably was he would have spent $360,000 on those payments as of April 2008. When he closed the loan he paid points on the loan which were I guess as much as 4 points thats $80,000. At the time of the closing I'm sure he had various escrow costs lets say 1 point for title insurance and other misc. thats $20,000. I'm sure on a $2,000,000 project the land was at least $500,000. That was just a guess it could have been much more. He must have plans that required Architects, engineers, soils studies. Lets say $100,000. Now were up to $1,060,000. He still had to have contruction insurance as well as property taxes. So he probably spent $1.1 to $ 1.2 million if he paid his bills. Now that you see how quickly money can be used up imagine how quickly he could have dispersed the remaining funds to other failing projects. He's just circling the drain.


Stefan

By: Anonymous on 5/7/08

to Mr. Slowwww Bear


You just can't let go. You must be some retired government worker sucking the teet of society. A lonely old fool who thinks if people don't travel the exact path your on thier wrong and deserve to be punished. You pobably spent your life never taking a risk. Well this country was built on people taking risks. If they didn't we probably wouldn't have any housing. I'll bet you have roof over your head. As to your blog its crap just like your opinions. If you've read one you've read them all. How many enties have you had on that piece of crap in the past few months anyway. The Bear sucks. Youre position is clear they took a risk therefore they deserve to get screwed. I have noted I'm not the only one who thinks you an egotistical idiot. I'm sure your opinions gain more support on your own blog so why don't you express yourself there.

By: Anonymous on 5/7/08

Hey folks – I'm on your side!


You all better get organized because one thing is for sure: ad hominem attacks aren't going o get your money back.

By: Anonymous on 5/7/08

Hey! Stop using this website to promote your own failing blog!

STFU and move on! Your ignorance and narcissism are bigger than your ego.

Let go of Karen's apron strings!

By: Anonymous on 5/7/08

Hot Dog is absolutely right. How many of you would be home alone with the curtains drawn crying into your (Pabst) beer without this site.


Probably the more hurt you are by the alleged misdoings, the harder it is to contribute to keeping the site rolling. The flip-side is that the more hurt you are by this, the more you need this site.


So pony up, if for no other reason than the entertainment value of this theater of the absurd.


By: Anonymous on 5/7/08

I'm asking the question Robin? I'm sure the Powell contacted all the people on the loan and other loans, my thought was that their names would be included in the lawsuit.

By: Anonymous on 5/7/08

Hey, this site has been a godsend for investors. We have many millions invested. How about kicking some down for U-SLO so they can keep up the good work? email tips and your request to donate at

tips@uncoveredslo.com.

By: Anonymous on 5/7/08

If you want to bond with other victims send an e: rippedoffinvestor@yahoo.com.

The chatter about the foolishness of investors is counterproductive and probably a plant from the crooks. Mismanagement and fraud are the key words here, not risky loans or bad market. Maybe if we ignore those fools they will go back under their rocks. Let's cool it on the whining and bond together to see what can be done to recover the money.

Gearhead is supposed to be on AM 920 at 5 pm today (Wed, 5/7), call in with your concerns.


Stefan

By: Anonymous on 5/7/08

To Hurst investor , Powell got a buddy to invest on this deal thats why hes upset. As far as I know he has no funds invested .

By: Anonymous on 5/7/08

To Hurst Investor…

Don't be so certain that none of the other investors want to join this suit unless you speak to all of them.

By: Anonymous on 5/7/08

Powell and Rios are the only investors on this lawsuit? There are most likely many invstors on these same loans and none of the other investors want to join this lawsuit? What does that tell you about this lawsuit? I bet most these negative posts are from Powell.

By: Anonymous on 5/7/08

The interest spin is overwhelming. The money probably funded other deals down stream? Im sure the money was not pocketed?

By: Anonymous on 5/7/08

I would like to know about the missing $23 million from Vista del Hombre (English translation: Man's Vision – how narcissistic is that?).

By: Anonymous on 5/7/08

Kelly will yell thats it's all lies and all somebody elses fault. I'll believe that it's lies when he produces the 2 million.

By: Anonymous on 5/7/08

I wonder what Kelly did with the 2 million? It's hard to believe that he just pocketed the money. He must have put it into a different development that didn't work out.

By: Anonymous on 5/7/08

SLO Bear Heavily Invested,


Thank you for illustrating with your public melt down and elementary school postings just exactly how seriously you deserve to be taken.

By: Anonymous on 5/7/08

Insider-


Slow and steady wins the race – a lesson from kindergarten you have forgotten.


As for hard money loans, if you could have gotten 8% you would have taken it, but you had to pay a very subprime 12-14% – for a very good reason.


There is little schadenfreude on my blog, only reality, which is something we all can agree, the Tribune is lacking.

By: Anonymous on 5/7/08

Attack the Bear

By: Anonymous on 5/7/08

Thank you SLO Bear for trotting out the oldest of cliches to evade taking responsibility for exercising your own bloated ego, and for being so arrogant about making financial assumptions about people you know nothing about.


You should be grateful to have such a widely read public forum in which to satisfy your need to scold, gloat, brag, boast, and inflate your sense of self importance.


Stefan

By: Anonymous on 5/7/08

I am heavily invested with the California Lottery, I have dumped a lot of money in and have seen no return, any other investors involved in this investment company please contact me at rippedoff@gmail.com so we can take action against this company for ripping us off.

By: Anonymous on 5/7/08

SLO Bear


You are apparently as your name implies a very SLOWWW bear. In fact most bears I know are offended you are using thier identity as your own. Your cunning wisdom is incorrect old furry one. I have no investment with any of these individuals. I have no loans with any of these lenders either. I have however built many homes over the years and successfully used many hard money loans. These types of financing when used responsibly can be a great asset to a small builder in the spec market and even to someone trying to build thier own home. Even a mid sized builder who is well organized can utilize a hard money loan well. When managed correctly these loans can provide investors with excelent income which is well deserved for helping produce a project that could not be finance in more traditional ways. However when these resources become the newest quickest way to seperate seniors from thier retirement by lenders and builders hooked on the cash flow crack, they can be quite convincing. As to your cutting edge blog you are a fraud with a better than thou attitude to anyone that doesn't have your superior intellect and judgement. Down with the Bear. He's SLOWWWW!

By: Anonymous on 5/7/08

Mr. Rick,


You are clearly in the anger stage of grief (and heavily invested in real estate). Once you get to acceptance, things will be much much clearer.


It seems the Housing Bubble created more than a few bull market geniuses. It is now time to see the Emperor has no clothes (Gearhart included).

By: Anonymous on 5/7/08

Thank you SLO Bear DewPoodle for clearly illustrating both the depths of your ignorance and the height of your schadenfreude.


While this website serves as your outlet to excercise your inability to contain your glee about real estate losses, others are here in an attempt to expose outright theft and fraud and to save both themselves and others from further victimization.


Clearly your echo chamber blog is not satisfying your need to scold and gloat, so your bloated ego compells you to come here where actual traffic exists.


By: Anonymous on 5/7/08

Insider – I have no connection to Gearhart and if he has walked away with/spent your money, he should go to jail. For along time. Period.


I have had a blog for over a year (click on my name) dedicated to exposing the fraud and truth in the real estate industry on the Central Coast. Dan Blackburn can testify to this.


If you came to the conclusion I am a lackey, I'm not surprised you were swindled.


I know some folks may not like my comments, but I am telling the truth, and sometimes the truth isn't what we like to hear.


I wish you the best.

By: Anonymous on 5/7/08

As a small time builder (tried to build one building in Atascadero with inheritance money) key word tried, I know that most of the cost of building comes upfront before breaking ground, obtaining permits, having plans drawn, engeneering, plan check, redrawing plans, waiting, i was unable to complete my project and I wasn't even paying interest on loans for those 18 months while I waited on red tape. So just because there is no building on site doesn't mean work has not been done. I'm not taking sides, but I know what goes into building and with the market the way it is some times you have to wait things out. Glad I didn't put all of my eggs in one basket, only wasted half of my inheritance on my failed investment project.


Stefan

By: Anonymous on 5/7/08

Sure sounds like SLO Bear and dewdog are a couple of Gearhart lackeys. Every comment seems to minimize the obvious fraud and deception of the perps. and put the onus on the investors. You guys have zero credibility on this site. You sleep with the perps. Down with SLO Bear and dewdog.

By: Anonymous on 5/7/08

I don't want investors to think I'm not sympathetic – I am. I know how it feels to be ripped off and I hope that every single fraudster on the Coast gets what they deserve.


But … luck wasn't the reason I did not lose any money with EFI, Hurst, or 21st Century.

By: Anonymous on 5/7/08

Thank you SLO Bear. There are obviously high risks with these investments. I have advised clients on some of these ventures and have advised to not get involved with almost all of them. There is usually no equity at all in the project. The ones that were invested in appearerd to be not what they were supposed to be as we tracked the project where the money was supposed to go. After the year of investment I advised my client to withdraw his funds from the project (not a Gearhart project). That investor recouped his money and discovered the risk of these investments. What is happening is not right and it's my best hope that the investors will be able to recoup most of their investments.

By: Anonymous on 5/7/08

I'll save Mr. Dog the effort.


Despite the likely criminal activities, sometimes the victim shares in the culpability. Let me explain.


Let's say you take all of your retirement funds and buy a rare antique sports car as your single investment. As you are driving the car home, you stop by Starbucks for a latte and leave the keys in the car running. You return to find your entire retirement fund has vanished.


No one doubts you have been victimized, but the loss could have been prevented. There were a lot of people across the County who left the car running.


I sincerely hope every one of these criminals gets what they deserve, but remember, if they were good credit risks, they would have just gone to a bank and not paid the subprime rates.

By: Anonymous on 5/7/08

Can't wait for dewpoodle to show up with his "you knew the risk" drooling.

By: Anonymous on 5/7/08

Outright theft.


Investors fund a loan for a project.


Hurst advances entire loan before a shovel is turned.


Project is never built.


Money is gone.


Outright theft.


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