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 5/8/08

You are all still going here. I just had to read for another 20 minutes. This is so entertaining. Its fascinating too and I know it's not funny but some of it really does get comical. I have been literaly LOL and even slapping my leg in moments. What at great blog. I don't have any money invested but I love this place and I understand how you all feel. Well actually I understand how most of you feel. There are a few dorks around but thats entertaining too.

By: Anonymous on 5/8/08

Ashamed,

Nothing except getting my principal back will make me "sleep good" at night but blowing steam off about your fatass friends will make me sleep better. We all have feelings and I know what I'd like to do about mine so bugger off.

By: Anonymous on 5/8/08

To Laughing,

Your mistaking. I told Optimistic to get off this blog. Same thing.

By: Anonymous on 5/8/08

I know why some are mad, but the ones saying these hurtful things that have nothing invested need to get a life.


I have been reading, I too have plenty invested. We haven't lost our money yet. All of you that post on here are highly pessimistic and get your jollies off on saying things that are irrelevant to the situation. But whatever makes you sleep good at night.

By: Anonymous on 5/8/08

Laura,

You told Optimistic to get educated, get informed, get something but you forgot to tell her to get fu**ed.

By: Anonymous on 5/8/08

Laura,

You forgot that he also got called Mr. Turkey Man of Atascadero! Oh No.

By: Anonymous on 5/8/08

Optomistic,

No you shouldn't sue your broker and you shouldn't be posting on this blog either. Get educated, get informed, get something but get off this blog.

By: Anonymous on 5/8/08

Hey Ashamed,

Someone called Kelly a fat ass and the like and your upset about his feelings. Just tell him to "man-up". He's big on those two words and say's them all the time. He'll understand and feel much better. Don't worry dear.

By: Anonymous on 5/8/08

nice set up on the callers tonight murray!!!

By: Anonymous on 5/8/08

People have not lost any money…they are just not receiving interest payments. Cool your jets and don't be so quick to file a lawsuit. I have lost money in the stock market this year should I file a lawsuit against my broker????

By: Anonymous on 5/8/08

Ashamed say's "I'm not sure what the root of some of your anger is".. Obviously she hasn't read this site. She is just responding to someone telling her that her good friend KG has been called a 'fat ass" and pudge gutt or whatever. She should be ashamed that she even had the nerve to open her mouth.

By: Anonymous on 5/8/08

To Ashamed: Are you kidding me, you don't know what the root of the anger is? People have lost their retirement, lots of money that they worked hard for and you wonder what their anger is about. Are you living in la la land or what?

People have been bilked by two shisters and you are upset at what people are saying. Unbelieveable!


Stefan

By: Anonymous on 5/8/08

To Ashamed,

You obviously haven't lost the kind of money that some of us have. You might even have benefited from the money we lost. If you did then you should be ashamed.

By: Anonymous on 5/8/08

To Insider,

Kelly was angry with the city (particularly Wade McKinney) over the Printery (and maybe some other things). He turned over documents to Karen proving that the Printery was 2 days short of closing escrow when the earth quake hit. He also confirmed that the Printery hadn't been an operating Youth Center. He said it all on tape! He wanted Karen to launch the FEMA Fraud story and pull in the FBI. The story caught their attention. They are now investigating city hall and will surely turn their attention to him before they leave town.This is not a small matter, its very serious stuff and it's interstate besides.

By: Anonymous on 5/8/08

u have been posting on this site for a few days now, and tonight has just gotten out of control. I hope you all get thrills out of acting like 2 year old and calling names.


You know what, no matter how you feel about a situation, messing with someones feelings is not right.

Good luck to everyone. I will no longer visit this trash site and I hope you all realize that everyone has feelings, some show those feelings better than others. I'm not sure what the root of some of your anger is, but if you have to come to this site to express your personal vendettas, more power to you. Just realize you all look like a-holes and name calling will get you nowhere in life….

By: Anonymous on 5/8/08

to Investigations


Tell more.

By: Anonymous on 5/8/08

to Dog 3


Take the property back and file suit. Why be limited to one or the other.

By: Anonymous on 5/8/08

Kelly wanted the FBI in Atascadero. Now they can turn their attention to him before they leave.

By: Anonymous on 5/8/08

Uncoveredslo has a pro bono attorney.

By: Anonymous on 5/8/08

It doesn't look like there is a plan for the investors to get their money back yet. I can see that it's difficult to decide weather to jump into a law suit or try and take over the projects or just collect your first trust deeds or whatever. What a mess. There are a lot of people rooting for you all who have been ripped off. Both my neighbors are talking about it and one of them has a friend that appears to have lost on a project. I don't which one. I told them to send the friend to this site. They have most of the info from the Congalton Show.


Stefan

By: Anonymous on 5/8/08

to Fighter


Don't try and take this situation and try and make it about your agenda. My appologies to your girl.

By: Anonymous on 5/8/08

Gearhead said on Congalton that this site has slandered him and he's gonna sue.


He and his drunken bubbas have said the same here.


LET'S SEE IF THEY'VE GOT THE BALLS TO EXPOSE THEMSELVES TO THE DISCOVERY PRIVILEDGES OF DEFENSE COUNSEL OR IF THEY ARE JUST DOING WHAT THEY DO BEST – TALKING OUT OF THEIR FAT ASSES.

By: Anonymous on 5/8/08

Hey Legal Problem Maker


Your as funny as MW is and you sure do think alike. Get my drift Mr. Turkey Man of Atascadero?? Check into ASH.

By: Anonymous on 5/8/08

Hey Insider,

You just said that Ellen Beraud "looks like a turtle" and then you told me to have a heart. If you don't like some of the CC thats your perogative but lets not get nasty. I think Ellen is very pretty and so do a lot of other people.

By: Anonymous on 5/8/08

Legal Problem Maker


Karen and Dan will have no problem reporting on Gearheart's prosecution, trial and jail time.


Maybe you should just finish off that 12 pack and call it a night.

By: Anonymous on 5/8/08

Don't you find it funny that not one of Gearhart or Miller's friends or even either one them didn't call in. They didn't "man up". Guess they knew that they met their match. How could they justify what they did….they couldn't. They are going down! I hope they look good in stripes!

By: Anonymous on 5/8/08

WOW, I've been out of town for a while. I have been reading for an hour. This is sensational. Hey, uncoveredslo got Kelly Gearhart and they got him good. I've been hearing about the KVEC shows from my neighbors. WOW Again. I didn't think Gearhart was that foolish. They say he needs to shut up unless he's telling the truth because he sure is a lousy liar.

By: Anonymous on 5/8/08

to fighter


Where did you come from. I in no way support Brennler or that woman who looks like a turtle whats her name. They have nothing to do with this and Brenlers petty attack at Gearhart was just that. We don't need someone who thinks he's still a cop on the C.C. This is a issue about people getting ripped off and not a place for you to try an gain some political gain for your favorite canidate. Have a heart.

By: Anonymous on 5/8/08

I love guys like Powell who stand their ground, file their lawsuits and refuse to negotiate: "Pay me or get your fatass to court."


On the other side of the coin you got weasel ass little girls like Gearhead who whine and play their little games, threaten and end up scaring off the weak and paying the rest.


Stefan

By: Anonymous on 5/8/08

Karen, Dan and Congalton sure are going to have a lot of legal problems. I just don't know how the 3 of them are going to keep up with the level of information they get out to the public once the trials, proceutions and jail time starts.

By: Anonymous on 5/8/08

Yup amoung other things Gearhart was elected man of the year in Atascadero. Thats why we voted in Brennler and Beraud. To clean things up. Brennler was onto Gearhart from the start. He took a lot of heat on it but I think he's been vidicated now.

By: Anonymous on 5/8/08

Listened to the podcast. That Gearheart idiot was named Atrashcadero Man Of The Year?


Actually, that makes sense.

By: Anonymous on 5/8/08

to Hahhah


Thanks. I decided not to respond to the witty M W as I determined he was a mental midget. Maybe your right he maybe the fatass midget himself. My appologies to the little people on that one.

By: Anonymous on 5/8/08

Naner Naner Kelly, What goes around comes around. I told on you:)

By: Anonymous on 5/8/08

I think I just saw MW respond to insider. MW has to read everything on this site to keep up so how is it that insider has no life and needs to visit ASH but MW is OK? Good One.. It sounds like MW might be KG. They sure do think alike.

By: Anonymous on 5/8/08

Put Straight Shooter Powell on the stand.


Put fatass pussgut on the stand.


I'll put my money on Powell.

By: Anonymous on 5/8/08

To Hummmm,

"The Moose Lodge"??? LOL

Give me a break.. still LOL


By: Anonymous on 5/8/08

“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.”


I am astounded that Hurst would ADMIT IN WRITING that is COMMON PRACTICE for them to violate their contractual and fiduciary obligations by advancing 100% on 0% complete projects.


Can you say "take me to court and pound me in the as*?"

By: Anonymous on 5/8/08

to Slow Bear


See knowbody likes your crap no matter how you try to dish it out. And no matter how you try to hide it its apparent to all its you. Empathy is obviously not your strong point. If anyone wants to here your lefty rant we will be sure to send them to your site.


Stefan

By: Anonymous on 5/8/08

Insider . your the duck with nothing to do ( must be a x gov employee ) check yourslef in soon . you need professional help . what would happen if your computer would go down ? I think you would go postal. GET A LIFE ! I will not respond to you I have things to do , like live .

By: Anonymous on 5/8/08

That last caller to Powell had to be SLOW Bear – the one who rambled on about risky investments and then slithered away when Powell told him it wasn't about risk, it was about fraud and theft.


That sure is one SLOW, brain damaged bear.

By: Anonymous on 5/8/08

to the investors


My sincere appologies for any light I make of this. I am on your side and have only persued this because I know in my heart of hearts you have been ripped off. I hope you recover as much as possible. I know you want to trust them and think they can somehow get your money back but the funny thing about money when its gone its gone its time to take them down, secure the property and make the next best choice.

By: Anonymous on 5/8/08

Speaking of Atascadero local gov. I bet O'Malley and Clay are crying to the Good Ole Boys at the Moose Lodge (or whatever that club is"

By: Anonymous on 5/8/08

to Kelly or Mr. Anonymous


Come clean or will take you out there behind the home depot and throw you in that group of senior citizens that wants a piece of you.

By: Anonymous on 5/8/08

Kelly Gearhart – You sure are arrogant. I bet Wade McKinney is loving this..

By: Anonymous on 5/8/08

to Mr. Kelly Anonymous Gearhart


What do you mean if houses were selling you would get your interest payment. Those comercial projects have nothing to do with houses you were supposed to have to money to pay interest payments in order to get the loan. Right?

By: Anonymous on 5/8/08

What happend to ANNOYED? Did he strangle himself? LOL

By: Anonymous on 5/8/08

I had a good laugh when Powell told Gearhart to "man up" and tell the truth. I recalled Gearhart pulling the "man-up" game on a caller last night as an excuse not to answer a question.


Stefan

By: Anonymous on 5/8/08

This is really getting quite entertaining wouldn't you agree? Kelly?, Jay?

By: Anonymous on 5/8/08

HOLY SH*T.


Powell is not someone to be messed with: "I will only have 2 types of meetings with Gearheart – to pick up my money or to see you in court."


This is getting good!

By: Anonymous on 5/8/08

to the Judge


Whats the best defence to a lawsuit? The TRUTH

By: Anonymous on 5/8/08

you all owe this Powell guy a load of thanks. You need to get together in groups and file your own actions. Powell was right on the mark. Kelly or Mr. Anonymous as you prefer it looks like your army is starting to run the other way. I don't see much coming from your side here and what I do see is childish at best. I'm sure you and Jay will turn on each other real soon. I'm sure Estate is enjoying this as it takes the light of them for a few minutes. Thier builders are pretty safe since Estate did such a lousy job of releasing money when the work was done. In your case Kelly you just took the money. I wonder who the other contractor with the 30 lots that also ran off with the funds was. Throw that name out Kelly you may divert some attention long enough to get out of town.

By: Anonymous on 5/8/08

Judge, as usual the freaks pop up whenever you least expect them. Kelly and Jay could have called to defend their position-they didn't because they have no position. Uslo and Dave getting sued-what planet are you on?


for those who want to connect with others:

rippedoffinvestor@yahoo.com

By: Anonymous on 5/8/08

The best way to get access to all documents is for Gearhart to sue and open himself up to supeonas and discovery.

By: Anonymous on 5/8/08

Lawsuits will be all over the place and this website and Congalto nwill need legal help.

By: Anonymous on 5/8/08

I like that guy Powell, he's a straight shooter who doesn't get distracted with the smoke and mirror evasive tactics and knows his way around the courthouse.


By: Anonymous on 5/8/08

Thanks Dave Congalton..

GREAT SHOW. I appreciate you bringing out the facts. You have helped so many people.


Stefan

By: Anonymous on 5/8/08

Fatass messed with more than one too many.

By: Anonymous on 5/8/08

TO ANNOYED,


Go strangle yourself. Powell is going to take us home later.

By: Anonymous on 5/8/08

this murray dude seems like someone who is not to be f*cked with.


seems fatass messed with one too many pilgrims.

By: Anonymous on 5/8/08

Murray Powell has the most annoying, droll voice. Get him off the radio before I strangle myself!

By: Anonymous on 5/8/08

Powell sounds right up straight to me. How about Rita, the woman with M.S? Is this all her stupid fault?

Speak up Dewdog. Do you really think it's all her fault? Do you really think Gearhart is an honest guy?

By: Anonymous on 5/8/08

this murray guy sounds like he's gonna put a hurtin' on pussgut kelly.

By: Anonymous on 5/8/08

this murray guy sounds like he has had a few too many drinks

By: Anonymous on 5/8/08

Powell: "This has nothing to do with real estate. This is a situation where we invested with Hurst, and THEY GAVE OUR MONEY AWAY."


Bingo.


Game over.


Book'em Dano!

By: Anonymous on 5/8/08

sounds like this murray powell has a personal problem with jay and kelly…his son probably does too.

By: Anonymous on 5/8/08

As I thought that piece of crap over borrowed senior project behind the home depot has never been finished and now is in default. Hopefully the investors can get enough rent from it to supplement thier incomes untill they can sell them sometime in the future.

By: Anonymous on 5/8/08

How does Mr Powell not think it has nothing to do with the real estate market? If houses and buildings were being sold, you would be getting your interest payments.


Stefan

By: Anonymous on 5/8/08

to Slowww Bear


Was that you. Do you get it yet?

By: Anonymous on 5/8/08

The Congalton callers supporting Gearheart were a laughable parade of backswoods, deer molesting, wife beating, meth snorting, brain damaged, hairy palmed midgets.


High entertainment.

By: Anonymous on 5/8/08

Gearhead publicly gauranteed that project as-is has a current value of $100M.


Consequently, he should have NO PROBLEM refi'ing and cashing out all lenders who want out.

By: Anonymous on 5/8/08

Sounds like a dumb ass to me! Duhh. Anyone can throw around facts and numbers to look knowledgable. Don't try to act like you aren't trying to ruin lives and say its not personal! He admitted his son worked for him. Does he still? Maybe his son is involved? Dun dun dun….


Oh great, Alan, the IDIOT from Texas who invested his whole retirement, and living on his interest check is back on! Smart move!

By: Anonymous on 5/8/08

Slowww Bear


Are you listening. Maybe you should get on the phone and tell this guy your concept on how its all his fault.

By: Anonymous on 5/8/08

Typical big-fish-in-a-small-town swindler. They're all the same, they all bluster and swagger right up until the time that they are hooked up and hauled off. Then they snivel, cry like little girls, and profess that God will forgive them.

By: Anonymous on 5/8/08

to all the Anonymous Supporters


So where are you. Are you listening. This guy sounds pretty straight to me.

By: Anonymous on 5/8/08

to M W


Well if it walks like a duck and talks like a duck and looks like a duck most likely its a duck.

By: Anonymous on 5/8/08

Sounds like this Powell guy is going to be a bit of a problem for Kelly and Jay.

By: Anonymous on 5/8/08

Who said I was a Gearheart supporter ? I said you need to get a life ! I know they have a room at ASH . you should look into it . FAST

By: Anonymous on 5/8/08

to MW & all you Anonymous

Gearhart supporters


He will screw you the same as everyone else so don't get to comfy. That is unless you are one of his real estate people or loan brokers in which case you have probably made out quite nicely and were smart enough not to invest any or your own money in these projects.


Stefan

By: Anonymous on 5/8/08

Insider is "RIGHT ON". For those of you who are friends of Mr. Gearhart, you are certainly loyal and he can't be all that bad to have such good friends. the bottom line is that the investors, lenders have been cheated, misled and lied to as recently as last night. Is anyone out there excited to here that the Vista Del Hambre land is valued by Kelly at 7.41 Million an acre!!!

By: Anonymous on 5/8/08

insider , you have nothing better to do all day but blog ? Your the fool . Get a life. There's things in the world besides talking crap.

By: Anonymous on 5/8/08

to interesting


I hate to say it but you appear to be a fool and you know what they say about a fool and thier money. Don't you remember the big sales pitch when you signed on the dotted line. All our loans are protected by California real estate and You as a first trust deed holder have the property as your security. And yet you allow them to control you. You still have the best hand and yet you let them bluff you out of the game.

By: Anonymous on 5/8/08

kelly is trying to work through the problem rather than giving up like other contractors. he could give up like the others and file bankruptcy..then investors woulld never get their money back. at least he is working hard so that doesn't happen

By: Anonymous on 5/8/08

You know the one thing that is true is the situation in housing and construction is not good. Many other contractors have failed and exited the situation. The problem with Kelly is he has failed and insists on continueing on. The biggest concern the investors should have is his statement last night that was meant to reassure them. And that was I'm not going anywhere. Thats the problem Kelly was underwater years ago he just could not accept it. Just like Estate. So instead of licking his wounds sitting back, liquidating his assets and attempting a measured comeback he countinued to buy buy buy and borrow borrow borrow pushing one bad deal into the next. There is a point that no next deal no matter how good you think it could be can cover your tracks. Now thats where we are at. I know lets loan him some more money.

By: Anonymous on 5/8/08

to Laughing


I'll be hear listening and blogging. Woudn't miss it.

By: Anonymous on 5/8/08

to Anonymous Gearhart


Nothing personal its just Gearhart is the worst of the worst in a developer. He typifies the stereotype. He exploits the land, the resources, the seniors, the retired, and then blames them for being greedy. His projects are just a way to keep churning the cashflow cow. There is nothing meaningfull in what he does. He has taken good honest men and dragged them so deep into his personal hell hole that they are now involved in trying to defend him. Right now its clear his family and buisness partners are trying to blog him into Sainthood. I'm just doing my little part to keep perspective on the matter.

By: Anonymous on 5/8/08

Ok, I know how to settle this. Insider needs to post tonight while Powell is on KVEC. He can't be both places at the same time. I'll be watching, and insider should post while Powell is talking.. I don't think insider is Powell.