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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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By: Anonymous on 5/8/08

to laugher


Your right. Kelly never did anything he wasn't required to do. I Kelly built some of the smallest cracker boxes in the community it was cause they were cheap to build and quick to sell. If he participated in affordable houseing it is because they made him. A lot of could that did the buyers now thier stuck with a deed resticted home that they can't even sell for what they paid for it. LOL

By: Anonymous on 5/8/08

To Insider:


I think you have a personal issue with kelly. Here again come the attacks on him and his family.

By: Anonymous on 5/8/08

to interesting


Which of these blogs do you think is Mr. Powell. I assure you its not me. Most of the rest are by Kelly and his lackies the anonymous brothers. Must be some kind of inbread family thing.

By: Anonymous on 5/8/08

To Anonymous,


Did you say Kelly puts people in homes that can't afford them? Like whom, where and when? The affordable housing scam is just that, its a scam. Its a way for developers to get more houses on lots. The homes are smaller and still are not affordable. What did he do, sell someone a house worth $350K for $350K on a postage size lot next to larger homes that were worth 100K more? Oh geeez what a nice guy he managed to squeeze a couple of extra houses onto a lot and laugh all the way to the bank.

By: Anonymous on 5/8/08

to Paso Guy


Sound interesting. It sure isn't any good as a golf course mayb a paint ball park is a better idea. You could hide in the weeds. Kind of like what Kelly does with your money.

By: Anonymous on 5/8/08

i wonder if murray will show up for the radio show tonight….he might not be able to leave his computer from posting all these blogs

By: Anonymous on 5/8/08

The gold course is only 14 acres! That means Kelly is claiming that the land is worth 7.14 Million an acre! Its a junk golf course by the airport. Is this the equity that the investors are supposed to take solace in? Oh my Lord what a lying piece of sh-t.

By: Anonymous on 5/8/08

Murray Powell will be on Dave Congalton's show, 920KVEC AM, at 5 p.m. today to talk about his lawsuit against Gearhart, Hurst et al.

By: Anonymous on 5/8/08

I have a suggestion for Insider and Anonymous.


How about you two meet at the Links tonite, say 5PM at the 1st tee. I will provide the paint-ball guns and you can settle your differences mano-a-mano.


You two up to that?


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By: Anonymous on 5/8/08

to anonymous


So you think he's right its worth 100 million is that what your saying? How far up his ass is your head?

By: Anonymous on 5/8/08

to anonymous


This is your definition of successfull and smart. I'd rather be dirt poor and the village idiot than successfull and smart if Gearhart is the definition.

By: Anonymous on 5/8/08

I am sure lots of banks are willing to refinance $100 million

By: Anonymous on 5/8/08

often bad bad people do good things in community its kind of like a pay off. Unfourtunatly for Kelly its not a game with a scoreboard where 1 good deed erases 10 bad deeds. So the community got back some of his ill gotten gains. Does that make it OK. He could do a verry good deed right now by refinacing that property that he says is worth 100 million and paying back the investors and paying the subcontractors who actually are the ones that provided the materials and labor for what ever work is done.

By: Anonymous on 5/8/08

I heard Kelly bought the golf course for $2 million a few years ago. So with three shell building and a few port-a-potties it is now worth $100 million. Its 14 acres in Paso near the airport.

By: Anonymous on 5/8/08

well i am sure it went to permits, plans, grading, oh ya and then you have delays so it is more money to spend and then while paying interest on top of that….it adds up!!

By: Anonymous on 5/8/08

to anonymous


The reporters stated the property was worth 5 million and that Kelly borrowed 28 million that nobody knows where it went. Kelly's responce is that 28 million figure is incorrect but then refuses to state a figure he thinks is more in line. Which he should know that number but apparently not. Then with no coaching comes up with a 100 million value for the project as it stands. The reporter even tried to give him room to back out of that but he insisted 100 million. So if you Mr. Anonymous are a supporter of Mr. Gearhart you must belief a person of his integrity. And if you believe him then 50 million would be a fire sale. Since the project is so complete by Kelly's own words if your smart forclose, spend the minor amount need to complete those pesky little things that are left "the buildings" and you and the other investors could recoup a small fortune. So what if it took a few years at that value you could borrow your original princible back out and wait for the market to return. Now thats all unless you think Gearhart might be blowing smoke up your but.

By: Anonymous on 5/8/08

kelly is a successful and smart man and people just want to see him be brought down because of that….look at all the good things he does for the community. everyone is just jealous


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By: Anonymous on 5/8/08

Kudos to the 1-2 punch of Velie/Blackburn and Congalton. The radio segment last night gave Gearhart more than enough rope to hang himself and I thought Dave was very fair in not trying to be accusatory. I like the teamwork being displayed with our local media and hope it continues for many years to come.


However, I do agree that the site administrator should remove all the personal attacks, especially on the Gearhart family. Those are cheap shots and detract from this site.

By: Anonymous on 5/8/08

yeah but he also employees hundreds of people, puts people who cant afford housing, in houses, and has done so much more for the community than most people would even think of doing. You just thrive off negative entertainment and dont see the positive with anything. Both Mr. Gearhart and Mr. Miller are great, caring, giving people and there are just a bunch of greedy a-holes out to get revenge because they will never be as successful.

By: Anonymous on 5/8/08

Last time I checked the economy wasn't doing to well, so I don't know how many people are willing to buy a $100 million dollar property.

By: Anonymous on 5/8/08

Kellys really pissed people off. There has been more investors readily giving thier names than with the Estate deal. Gearhart really rubs people the wrong way. That will probably be his downfall hes just an SOB what else can you say.

By: Anonymous on 5/8/08

if nothing is selling…how do you think you will be able to get a sale? oooh smart one

By: Anonymous on 5/8/08

to anonymous


What would you do with the property. Didn't you hear Kelly last night. He says its worth $100 million as it stands. You guys could sell it at half price and double youre money.

By: Anonymous on 5/8/08

Plenty of people called in and no one gave their last name. Kelly answered what he wanted to answer depending on if he could get away with lying or not. In some cases he was up against the wall and didn't answer because there was no place to hide or lie.

By: Anonymous on 5/8/08

On second thought if Gearhart filed a chapter 11 he might be able to string things out for quite some time. Certainly hang on to the property while he proposed some plan. Damn we could be talking about this for years. Last night showed hes capable of anything. No attorney would have recommended going on that show.

By: Anonymous on 5/8/08

What is this lawsuit going to accomplish?? Wasted dollars and time. I am an investor and I wouldn't want to forclose on a property…then it will just be our problem. I think everything will be fine we just need to wait it out bit

By: Anonymous on 5/8/08

to Mr. Anonymous


Isn't that the pot calling the kettle black. Whats your name?


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By: Anonymous on 5/8/08

To insider….


its because you are a coward and hide behind the computer..

By: Anonymous on 5/8/08

to anonymous


Kelly decided he wouldn't answer any questions from anyone that wouldnt give thier full christian name. Now if I called in and gave my name I wouldn't be an insider anymore would I?

By: Anonymous on 5/8/08

The subs aren't getting paid. You're not getting your interest. Taxes are not getting paid. Unlike Estate from what I understand all loans are securred with a first trust deed. All you lose is your interest while you wait to see if Gearhart completes construction or files Bankruptcy. Oh wait if he files you may still be able to get your property back although it will take a year or so longer in Bankruptcy Court.

By: Anonymous on 5/8/08

I got news for you Bubba, the sooner Gearheart is in jail the more of your principle you will get back – and sooner.


He is banking on the investors doing exactly what you propose – cooling their heels and eventually walking away with a total write off.

By: Anonymous on 5/8/08

To Lender,

I see your point, I hope your right.

By: Anonymous on 5/8/08

I am a lender at the Vista del Hombre project, I've talked to the city, the sewer and water line infurstructure is complete, will need to be connected once the sewer and road improvments are completed on Dry Creek Rd., the first 9 building plans have been submitted for permits and are being corrected by the engineers, the first 11 lots have been graded and prepared for building once plans finish going through the plan check process and permits are finally issued, the interior road although looks unfinished because of weeds is 90% done, just needs base and asphalt. Sounds to me that the majority of the costs in this project have already been done, from what I understand the final actual building of the commercial buildings is inexpensive, all the heavy costs are upfront before building can start.(Permits, plans, engineering, surveying, excavating)So i'm not afraid of losing my money at all. I'm willing to wait it out, what good would a finished building do right now anyways, no one is buying, its gonna be a year or two before people start buying again anyways. I just hope all these lawyer fees that arise from other hostile lenders don't cause Kelly to quit building, I want my priciple back and I'm not going to get it if he is sitting in Jail.

By: Anonymous on 5/8/08

All Gearhart family members have a right to post here, including Kelly's brother. Why should his post be pulled? He is entitled to voice his opinion and his expierence. I'm proud to be on this blog. I'm proud that Dan and karen do "real investigative reporting". Anyone who doesn't like this site is afraid of the truth. Watch Out you might be next if they haven't already caught you and told everyone.

By: Anonymous on 5/8/08

The golf course at Vista Del Hambre is a small part of the project. What about the real construction? Where are the buildings. The money is gone and the permits aren't even all in place. Go and check for yourseves. By the way.. Dave Congalton has an excellent show in fact he is the TOP RADIO HOST in the county and has over 40,000 listeners. He will never be "washed up". For those of you who are afraid of the truth just wait because you haven't seen the half of it. Yes be scared of Congalton and tell us all how much you hate him and we will tell you that we know you have something to hide.


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By: Anonymous on 5/8/08

And for those who think this website is "AMAZING"


something should be done about who is filtering through these blogs. When people take personal stabs at family members, lost loved ones, etc, those comments should be pulled IMMEDIATELY. You have no class. I wouldn't go bragging about your site there, I would be embarrassed to have my name on this

By: Anonymous on 5/8/08

to anonymous:


Good call with no one ever calling out Gearhart or Hurst to see where the money is coming from until something like this happens. People don't care if something seems shady until they aren't getting their 12% back for 2 months. No one has "lost" their money yet.


I am also invested in the Vista Del Hombre project, and I golf there weekly. As I go out there, I see improvements weekly. Everyone out there is working hard to keep the project going. I bet half of you that are complaining that 1. its not going to be as nice as they say 2. the project will never be complete, havent even stepped foot on the golf course.


Maybe if you want your investment back, do something good for the community to get some revenue going….get off your butts and do something else besides sit here all day behind a computer and bash people who are working hard so you can get your money back….


And those who have such strong opinions (insider, etc) sure funny we didn't hear you call on the show last night… coward

By: Anonymous on 5/8/08

KVEC knows that congalton's show is a liability not an asset.

Dave is struggling…he is spent…tired…and has reduced himself to a puppet of the far left.

He is sucking the enerygy from this site!

Uncoveredslo is a great new site that will do just fine on their own.

Don't be misled! Congalton is so far gone he has to annonymous clones debating on Monday's show!

Can you imaging and talk or news show letting annonymous clowns in the air? It's 100% irresponsible! But it's all Dave has left now that he has sunk to a mere puppet of the radical sorros left.

USLO should get as far from him as they can.

Doubt me? Watch what KVEC does over time with him.

By: Anonymous on 5/8/08

Dave ran a great show yesterday at 920 KVEC. He let Kelly bury himself. No one can say that Dave took any sides or steered the show to the detriment of Kelly. Kelly did it all by himself to himself. Without Dave very few people would know about uncoveredslo. So if you love this site and the work that Karen and Dan do to bring honest information to everyone then give Dave Congalton a big applaud.

By: Anonymous on 5/8/08

Attention potential Gearhart investors: Listen to the Congalton podcast.


Nobody who listens to that KVEC Congalton interview would ever invest with Gerahart to build a dog house.


He makes it crystal clear that he looks upon his investors the same way a street criminal looks at his marks: They deserve to be screwed, and he takes pride in doing the screwing.

By: Anonymous on 5/8/08

I just heard the podcast! OMG! Kellu used Dave like a puppet! He mopped the floor with dave and Congalton was helpless to dturn it around! He stammered and bumbled along while Kelly ran the show for the hour!

What a discrace! KVEC better rethink this program. nless Dave is hating Bush or America he is impotent!


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By: Anonymous on 5/8/08

Kelly has always been this way, nothing has changed. Lenders loved him when they were getting 12% for all those years. Kelly is a developer and not a public speaker. Hurst has ran their business the same way for 22 years. No one ever called out fraud before, why? because they were all getting rich. It is not Hursts fault that the guy from Texas invested his entire nest egg and was living of the interest checks. Also, Kelly probably cannot pay his sub contractors because all his money went to interest payments, $4 million dollars a year. The money all probly went to interest payments to various investors.???

By: Anonymous on 5/8/08

Congalton is flailing & failing! He is super glued to your apron strings! Cut him loose! He will drag you down as well!


You should have the blog for local and national issues! You should contact a local radio station and have a daily show!

His time has come and gone…It's over!

You are the fresh new appraoch full of hope and change and we all want to support you…Let us!


1) Kick Congalton to the curb. He is over! KVEC will dump him soon. I give it till after the November election tops!

2) Start a blog! Just do it!

3) Get a local radio talk show! You guys would kick ass.


Do those 3 things and ther cash will roll in! Lot's of it!

Don't let this opportunity slip away.

By: Anonymous on 5/8/08

I believe the real question remains, have the "lenders" funds been in a escrow account for the specific construction project they were intended??? If they were paid out in interest on those projects then what are we left with if no "sticks" have been raised and the dirt is worth less than than 1/2 of original loan on a good day.

This relates to another Atascadero Homeowners LLC/Hurst loan.

By: Anonymous on 5/8/08

Hey Kelly! Here's some advice for you about your future: If you drop your soap, don't bend over to pick it up!

By: Anonymous on 5/7/08

Too all ,especiallly those who last posted, never make fun of those o trusted, You are piraare.

By: Anonymous on 5/7/08

To Mr. Texas….


What are you thinking putting all of your 480k of retirement into this high risk investment and having to "live off your monthly investment check." I just actually answered my own ?. you werent thinking!!!


(Too angry, learn how to spell)

By: Anonymous on 5/7/08

I'm just too angey with Kllyc and Jay that I can't go there right now


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By: Anonymous on 5/7/08

Hey Samsonite.

I really just have to say "keep working in"'

By: Anonymous on 5/7/08

I believe when the cards are all on the table on the various loans at Hurst that are no longer paying interest, in most cases we'll find that the so called missing money was all paid back to investors as interest payments. The city of atascadero planning dept is completely out of control with never ending plan check corrections, add that to the worst real estate slump ever and all the hard money projects are upside down. This is not fraud and mis management its a Reality check. I remember when my Retirement mutual funds lost 60% of their value. This was very painful, and reminding myself that the first rule of investing is NOT TO INVEST MORE THAN YOU CAN AFFORD TO LOSE didn't make me feel much better. I can't say there was no wrong doing whatsoever, But I do know some builders who have poured their hearts, soles, time and money into Hurst projects that are failing for reasons beyond their control. Time will prove these facts out with many of the borrowers. Lets not be in a rush to lump them all together as and condemn them as crooks.

By: Anonymous on 5/7/08

Keep working hard Kelly. Good things come to people who work hard. You have a lot of support, all of these people will be kissing your feet when you finish this great project and everyone gets paid off. People get scared when times get tough. Do your best, thats all you can do. It's funny how all the people you have made money for over the past 25 years turn on you when times get a little tough. I'm sure the caller that questioned you having some past due subcontractors didn't take in to account that you have probably supported thousands of people over the last two decades and now you are struggling a little and nobody wants to cut you any slack. Engeneers, plumbers, laborers, landscapers, loan officers, real estate agents, building suppliers and everyplace all these people spend their money prospered because of you.

By: Anonymous on 5/7/08

i just want to smoke a bowl..

By: Anonymous on 5/7/08

I was rivted to the radio the entire hour tonight. Those phone calls were amazing and I can't believe Gearhart came on the radio. What was he thinking????? Thank you Dan and Karen — and Dave too. Glad to have such an active local media involved on our side.

By: Anonymous on 5/7/08

to anonymous


You really don't know get it. In general the Criminal Authorities don't like chasing this stuff around. They for the most part consider this type of stuff civil and don't want to waste thier budget helping one crook chase another crook over money. They pretty much consider everybody involved a crook of some kind.

By: Anonymous on 5/7/08

What still mystifies me are several comments by investors that the developer owned the land outright on thier project and only borrowed the construction moneys. I don't believe that for a minute. It's most likely Kelly did not put in one cent. I'll bet anything the land was purchased with the investors money. Check it out.

By: Anonymous on 5/7/08

Get this straight:


The fund manager considers the investors to be patsy's that fund loans that provide him with fees.


The borrower considers the investors to be patsy's that can well afford to lose all of their investment and they therefore see no obligation to repay the loan.


That leaves the investors with no choice but to pursure their complaints through the regulatory and legal process.


The sooner they understand this, the better their chances of recovering any funds.


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By: Anonymous on 5/7/08

See what mean? to Kelly, SLO Bear, DewPoodle and their kind, the investor is "a nut" who deserves to be swindled and the swindler is just doing what anyone would do.


That is what you are up against, and it is to your benefit that you know that upfront.

By: Anonymous on 5/7/08

to anonymous


Someone who trusted these guys and probably you too.

By: Anonymous on 5/7/08

Hey insider , what nut invests $480.000.00 that he cant afford lose in 12% interest account ??????

By: Anonymous on 5/7/08

It's a common criminal mind set: "If you are rich enough to loan out $480k and stupid enough to loan it to me, I am justified in stealing it and you'll get no sympathy from me."


Kelly being stupid enough to come right out and say it is actually helpful fro people to see him clearly for what he is.

By: Anonymous on 5/7/08

to dogdoo


You wanted to wait and see how this went. Well have you seen enough yet?

By: Anonymous on 5/7/08

Dear doesn't fit . I'm just fine having a glass of fine wine ! U.B. get a life !!!!!!

By: Anonymous on 5/7/08

could you believe how badly Gearhart treated the guy from texas who loaned him $480,000. Its almost as if he was saying your not hurting if you can give me $480,000. The arrogance of that little puke.

By: Anonymous on 5/7/08

Hey Anonymous,


Maybe I'll should just snap your panty hose for you. My pants fit just great, but I suspect your in a "bit of a squeeze " if you please.

By: Anonymous on 5/7/08

The difference being that they did not invest their money to be advanced beyond the contractual conditions, which both Hurst and Gearheart have violated.


Are you not smart enough to iunderstand that


By: Anonymous on 5/7/08

to Anonymous


"The biggest whiners will be the biggest losers in the end" That sounds like some kind of threat.

By: Anonymous on 5/7/08

To Hanging On..

I'm trying to protect the project that I'm in to. I heard that mine might have foreclosed. I had a little money $125K to invest but I'm not financially savy. How can I find out if something is foreclosed on without calling a lawyer and spending money?


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By: Anonymous on 5/7/08

Why is everyone turning on kelly? He is the same person now as he was when everyone initially invested.

By: Anonymous on 5/7/08

So linda are you powell's main squeeze ?

By: Anonymous on 5/7/08

Right here and now I dare Kelly to call in and challenge Mr. Powell tomorrow night. I dare Kelly to find one fact that is not true that Mr. Powell will state in his facts tomorrow night. Facts are facts and Kelly is a liar. He lied about not co-mingling funds into other projects. Call in Kelly I dare you!

By: Anonymous on 5/7/08

To Backs Jay???:

If it doesn't fit maybe you should get a bigger pair of pants!!!

By: Anonymous on 5/7/08

Cripe, This Gearhart/Hearst deal sounds like EFI all over again. Glad I was only in one group.

By: Anonymous on 5/7/08

People know a baldface liar when they hear one, and Gearhart could not have been more obvious today if he had arrived in his Rolls Royce to pick up a welfare check.


Any small time criminal knows that buying time is key, and the way to buy time is to deny, deny, evade, accuse, deny, insult, intimidate, deny, deny, cry, cajole and deny.


It's all about buying time, because he knows that when he can no longer buy time, he's gonna be DOING time.


Investors need to take a page out of the EFI playbook and relentlessly pursue their best interest without delay or distraction.


You've been defrauded and it is up to you to achieve justice.

By: Anonymous on 5/7/08

To Anonymous….

How in the world can you back Jay when he gave Kelly all the money "up front". Yes I gave Jay the money to invest for me with agreed contigencies. He violated my trust. Don't even try this one on with me. It doesn't fit.

By: Anonymous on 5/7/08

Does anyone remember the song that a part of later became a cliqche "Ask me no questions and I'll tell you no lies". I just want to puke.

By: Anonymous on 5/7/08

To Peabody's Plumb:

This is not Mike Sherer that called in. Just remeber they did not take your money, we gave it to them to invest and I back Kelly and Jay 100% that we will get our money back…as far as I am concerned we haven't lost anything. We are just not getting interest. The biggest whiners will be the biggest losers in the end

By: Anonymous on 5/7/08

I have been following all of this and I really don't know what to do. I'm trying to protect my project. Hhahh "My Project" what a joke. I don't even know if there is any funding left for the project I'm invested in. I know its not built and I want to hope even beyond all hope that I'll get my money back someday. Lets just pray and not attack. We must band together to save whatever is left and maybe in two years or three we will recover our money. I know wrong has been done but putting people in jail won't save us.


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