HFI’s Jay Miller forced into bankruptcy

June 29, 2009

By KAREN VELIE

Several investors in Hurst Financial Inc’s (HFI) hard money lending schemes thrust HFI President Jay Miller into involuntary Chapter 7 bankruptcy citing Miller’s failure to repay loans he personally guaranteed.

Before their meltdown a little more than a year ago, HFI’s key players’ lifestyles were reminiscent of Fitzgerald’s Jay Gatsby: lavish parties, exotic cars, and high rolling excursions in their monogrammed private aircrafts. Investors claim Miller and his associates used construction monies to live the high life, while paying interest from one account to fund another in an alleged Ponzi scheme.

Earlier today, three creditors – Pete Evans, Gary Luttrell, and Kelly Christensen – filed a petition with the Santa Barbara Bankruptcy Court seeking to collect $117,000 from the former lender. Miller partnered with developer Kelly Gearhart as a co-borrower on properties the petitioners invested in.

“We did this so we can get recovery,” Christensen said. “So Miller can’t liquidate his properties or transfer his assets to others. He has been taking properties out of his name.”

The court’s ruling means that, as of Tuesday, all Miller’s financial transactions will fall under review by the U.S. Bankruptcy Court. The action also stays any court orders or filings taken under the past 90 days.

Miller will have 20 days to respond, by either filing a motion disputing creditor claims, or by demonstrating to the court that all debts are current.

More than 1,200 investors, primarily seniors, invested in excess of $100 million with HFI that is currently unaccounted for. Late last month,the FBI seized proceeds from the sale of Miller’s home citing allegations of racketeering, money laundering, and wire fraud. No charges have yet been filed.

Christensen, a partially retired cement mason, who used to send a portion of his interest payments to family members in the Philippines, is now scrambling to pick up odd jobs in order to keep a roof over his head.

“I’m no longer able to send money to our family in the Philippines, they are literally starving,” Christensen said.

A 64-year-old retiree, Evans donated regularly to numerous charities. He invested $200,000 with HFI thinking he could step up his philanthropy.

“I wanted to casually spend my life giving money away,” Evans said. “Our purpose is to help one another. But first you have to keep yourself financially healthy in order to give to others.”

A least four San Luis Obispo County investment firms – Estate Financial Inc., Hurst Financial, Real Property Lenders, and 21st Century – have allegedly participated in schemes that have cost local investors more than $500 million, creating an environment that may shadow private, non-profit, and business finances in this county for decades.


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One Comment

  1. ccn_debate says:

    Member Opinions:
    By: cheseburger on 9/9/09
    What happened on Sept 2 at the new bankruptcy preliminary hearing, continued? Til? Anybody knows, post it please. In the santa barbara bk court.

    By: BeenThereDoneThat on 7/11/09
    To Insider.

    Lube!! Lots and lots of LUBE!! ;-)

    By: insider on 7/9/09
    I wonder how they will treat Gearhart in prison when they find out he’s an ex prison guard?

    By: mo on 7/9/09
    TO LLR AND INSIDER
    Insider, you of all people should know, right Bob! To learn more about the Contractors law yourself read the business and profession code, start at 7026. Subcontractors take on the role of prime contractors if they contract directly with the owners, which is legal, cost effective and usually results in a better product. many public work projects are managed by consulting groups acting as an agent for the owners, and these multimillion dollar projects are perfectly legal. Most schools are built this way, along with other State funded projects. As long as Heritage Lending and the Phoenix group only act as the agent for the investor groups and use licensed prime contractors they are within the scope of the law. Futhermore they may directly contact prime-contractors on behalf of the owners. Your information is driven by personal hate or vengence rather than the law. The C.S.L.B has already issued letters to both firms confirming the aforementioned laws.

    By: insider on 7/8/09
    Mo
    Please quote the exact state law that allows these acts you quote. I’d love to look it up.

    By: Lifelongatasresident on 7/8/09
    Mo, Your wrong! Ron Berry and Jim Plantz are both acting as contractors. Both seek bids to finish projects and hire these subs to do the work, they instruct them on what they want done and accept the finish product. Both are hired and paid by the investors on these projects. Whos paying their work comp, whos got the liability insurance? They become employees of the LLC with no oversight. CSLB is looking into Berry’s actions and things will come down on him soon.

    By: mo on 7/8/09
    Lifelongatasresident
    your infomation is inaccurate in regards to owner builders. A person or a Limited Liabitily Company can act as O.B under these circumstances:
    A. you are limited to selling four(4) or fewer residental structures in one calendar year.
    B. The work necessary to complete the project must be performed by licensed “subcontractors”.
    The law does not mandate you must live in the home for two years, under these aformentioned narrow guidelines. Currently there is two companies finishing properties in the area, Heritage Lending, Phoenix Group, neither are contractors. Neither company is required to have a contractors license unless they are performing the work themselves. Both companies hire licensed contractors to perform the work and as far as “damages goods”, that to is a mythe, all work performed by subcontractors carry the same work standard recoarse that any other project would have. Get your facts straight!

    By: Lifelongatasresident on 7/8/09
    Yes I understand from court records that the judgement is 200k. Im sure he can come up with it ripping old people off through PRG. They have a good start at it now. And you are right, any home built or finished by them is damaged goods. There is no contractor of record so there is no one to go back on except the lenders. And yes if they choose to use him to finish a project they need to hire his as an emplyee and pay all the work comp ins, liability ins and payroll taxes that go with it. But of course thye are im sure HAHA.

    By: knowthisatascadero on 7/7/09
    LLR – I do not know how HOB is doing collecting, I heard the judgement against Berry was for $200,000, is that correct?

    By: Lifelongatasresident on 7/7/09
    Inside, you are right I just meant hes no contractor. Anyone know how Heritage Oaks Bank is trying to collect on the judgement they got against Ron Berry?

    By: knowthisatascadero on 7/6/09
    Good posts here lately. Did anyone read the Trib today?
    Insider: I think you have it right. It seems that all of the homes that have been completed by someone other than a licensed contractor are damaged goods. Who does the new owner call when there are problems?
    Seems we might call these people modern day Carpetbaggers! Making money on someone elses misery and bad fortune!

    By: insider on 7/6/09
    LLR no I think I had it right. A unlicensed contractor is someone who contracts without a license. The state contractors board has a whole department dedicated to the purpose of prosecuting unlicensed contractors. Often someone is running the construction contracts for owners which he thinks puts him above the law. The problem with that logic is that he is finishing homes for investors that pull and owner builder permit with the full intentions of selling those homes on completion. You can only build owner builder if it is your property and you intend on occupying it for I believe a minimum of two years after receiving a certificate of occupancy. Otherwise the law REQUIRES you to use a general contractor. Which one certain individual is NOT. So either A)The job supervisor needs a valid General Contractors license or B)The owners he is working for need to hire him as a employee and pay all the trimmings and then live in the home for a minimum of 2 years prior to transfering it to a member of the public. At least thats the way I read the law.

    By: Lifelongatasresident on 7/6/09
    Insider, Yes he made some money for real and paid some huge tax’s thats why he bought the Jet remember? And the Rolls was supossed to be for the Printery building when he made it into and event center but both never happened. Im sure we will hear all about the tax returns soon enough. I wish he would have made it and then wed all be happy talking about him rather than pissed off.

    By: Lifelongatasresident on 7/6/09
    Insider, Did not mean to insult you. We know he lurks on here. Just trying to figure which one he is! By the way he is no contractor. You need to be licenced to be a contractor. And have you seen his work? Anyways more to come as time rolls on, Have a nice day!

    By: insider on 7/6/09
    Ron Berry the unlicensed contractor. I think not. Now what about those tax returns.

    By: Lifelongatasresident on 7/6/09
    Insider, exotic cars are foriegn cars not the crap Gearheart had. The Porche was given to satisfy a debt, the Yellow Packard same, black escalade went along time ago and you are right the 56 Chevy was sold. All this comes fom the FBI. And by the way are you Ron Berry? Hmmmm

    By: insider on 7/6/09
    The real question is did Gearhart ever, ever realy make a profit or did he just live off of your borrowed money? Has anyone every seen a federal tax return for this guy? If he was making all the money LLR thinks he was off of houses he would have paid taxes right? I personally don’t see any proof he ever made a dime. What I do see is he borrowed a lot of money and lived like a little king. Or would Ceaser be a beter analogy.

    By: BeenThereDoneThat on 7/6/09
    To Life.

    Yea Kelly took back some of Bob’s cars and properity after his finance’s went south.

    By: BeenThereDoneThat on 7/6/09
    Insider. The jet has been gone since before 07′. He took the Yellow Packer and Porshe to Ohio, the 56′ he sold. I believe he also took the black Escalade too.

    By: insider on 7/6/09
    LLR,

    What about the Jet and Exotic Cars?

    By: Lifelongatasresident on 7/6/09
    I spoke with an FBI agent about this recently. They have investigated the gambling looses and found that he lost approx. $35K over 24 yrs of gambling. I guess all gambling is tracked by the casinos there. Gearheart was not the big gambler, Bob Shannon and Dave Graves were the big gamblers and lost millions.

    By: Nameless on 7/4/09
    Lifelongatasresident, Now that HFI is in BC, the experts and their attorneys will take their time while getting the first draw. Than creditors get paid and investors if anything is left. Wonder how much was paid out to investors in the form of interest while the going seemed to be good?
    So lets see how does these thing work with the BC court.

    Invested 5 years ago $1,000,000. Received 12% for 5 years equals $600,000.00 for the five years.

    At the end there is $.20 left on the dollar that is equal to $200,000 to be returned to the investor.

    Since $600,000 already received deduct that from the $200,000. That equals to -$400,000.

    If you have left any good assets? hide it and run.

    By: BeenThereDoneThat on 7/3/09
    To Lifelong

    Yea I hope for all the investors (which I am not, I am on business end) that they would get back most or all of monies but I have to be pragmatic in reading all this kind of loss crap over 30 years and know that almost all these guys usually get prison time but never pay money back

    Micheal Milken comes to mind.

    One exception. The charactor that Leonard Decaprio portrays in the movie “Catch me if you can”. I read an article after it was out, that the real man went on to success and paid back all of the four and a half million dollars he swindled.

    By: BeenThereDoneThat on 7/3/09
    Knowing Kelly through business for years, that (gambling) concern has sat in the back of my mind.

    You still have to wonder. The guy files for 45 million bankruptcy. I will give you that some is for labor and materials so you can’t figure that till you sell but what all the investors gave upfront, for land etc., even if you take some out of the equation, there still has to be quite a few million unaccounted for.

    Also he sold the Rolls and Plane for at least break even (that straight from his mouth) so????

    By: Roo on 7/3/09
    Blue Mule is correct.

    By: bluemule on 7/3/09
    The losses are too large to be accounted for by interest and the other odd expenses of development. I have a feeling that when the investigators get to the bottom of it all they’ll find some HUGE gambling losses on the part of Gearhart in Vegas.

    By: Lifelongatasresident on 7/3/09
    Hey beentheredonethat, Thank you. I hope you are wrong about not seeing a dime, I think we will get some back 10 to 40 cents on the buck. God I hope so. I do understand the point about letting off steam. Ive been in Jays office more than once about his as it started to come apart.Have a great 4th, it’s still america and good place to live.

    By: Lifelongatasresident on 7/3/09
    Ya I know and we all saw that, but remember in the beginning they were all making real money, building and selling for a profit. Then the market slowed down and they did not, so they had to keep borrowing money to pay the interest and payments. Their heads got to big and they could not see what was going and and really happening. We all kept our heads in the sand too long. I wished i had been more aggressive about getting my money out! Too much greed and we are all guilty of it, or we would have been invested in safe things, savings, mutual funds, maybe stoks. But we all got greedy and wanted that 12%. and now we got what we got! A mess and years to try and figure it out.

    By: BeenThereDoneThat on 7/3/09
    Lifelong. I LOVE your recent feedback. That is the best I have seen. I think you have stated how everyone feels.

    We comment to let off steam but I think everyone feels the same and understands we all will never see a dime.

    I think that people expressing how they feel here is cathartic, in letting it go.

    I think we feel taken and foolish for letting it happen and when we see others in the same boat, you know that it isn’t just you.

    That has been my point in exchanges with you for some time.

    Now lets start exchanging ideas and points. :-)

    By: insider on 7/3/09
    Lifelong,

    What you say makes some sense except what about the lifestyles these guys were living while they were going down. Huge personal draws. Gambling junckets. The list goes on.

    By: Lifelongatasresident on 7/3/09
    Insider, my net with these guys is a huge NEGATIVE. So if they want to come back on me using the Clawback theory, good luck! Please don’t get me wrong about all this im PISSED big time over it. But being the rational person that I am I sat down ran through the numbers, and I dont believe that they have any money squirreld away, I wish they did and the numbers are bogling. It’s simple math. A builder borrows X dollars, he pays for the dirt, then you spend money on plans, permits, engineers, interest, tree people, interest, indians looking for bones, fight with the county or city, interest, mean while 2 or 3 or even 4 years have slipped by and the while paying INTEREST, then the economy takes a down turn, and your done! WOW!!!! And yes you are all right about they should have not kept borrowing. I wished Miller would have jsut forclosed on each builder as they started to fail. Then this would not have been as bad as it is. Miller was a fool to not do that all along, but im sure he was thinking thigs would trurn around and it would go away, guess not!

    By: insider on 7/3/09
    Sounds like Lifelong must of been one of the people who made good money out of this thing and new to get out while the getting was good. Lifelong what was your net from all the deals over your entire relationship with all these guys? Also when did you get out? This is what Clawback is about.

    By: Lifelongatasresident on 7/3/09
    Also Clem, put some salt and pepper on that hat, im sure it will taste better, because no Gearheart supporter here.

    By: Lifelongatasresident on 7/3/09
    Hey Clem, naw sorry not one of the good ol’ boys here, in fact not even a friend of theses guys! Anyways, where theres smoke theres fire? PROOF babe, where is it? I was raised as an american and EVERYONE is innocent till proven guilty in a court of law. No one has been proven guilty yet. In fact except Guth and Yaguda no charges are even files. Just because theya re investigating does not mean anyone is guilty. Sure glad you are not on a jury. Have a good day

    By: Clemintine on 7/2/09
    Whos spouting Lies LifeLongAtascresident- Good ol Boy?

    It seems everytime Velie and George point out smoke we find out there is a fire.

    If you aren’t a Gearhart Pom-Pom Shaker I’ll eat my hat.

    By: Lifelongatasresident on 7/2/09
    Hey Hurstinvestor, thanks for the few kind words. I agree we all had a calculated risk and it went too far. I was able to pull some money out before the colapse. WE all knew the money was going to purchase the property and then do the construction. Thats why the property was figured into the prospectus that was sent to us. Our mistake was not lending these guys the money. our mistake was investing in large projects that needed splits or rezoning. WE did fine on the single family loans on already ready lots, ok mostly. Anytime you need to go through the county or city the process is delayed for years and then the money all gets eaten up in interest. Thanks

    By: DashRiprock on 7/1/09
    How does Gearhart remain outside of bars?

    By: BeenThereDoneThat on 7/1/09
    Like George says, don’t feed the trolls.

    I figure just smile and they will go away.

    They hate people expressing their rights to their opinions.

    By: Nameless on 7/1/09
    By: Al on 6/30/09

    Uhhhh, Aren’t you a little harsh on him? He had $750,000 to lose while you and I are not so happy with our losses.
    Maybe he can buy our shares at a 50% discount and use it for a tax write off. At least I could eat for another month.

    By: BeenThereDoneThat on 6/30/09
    To Mo. I wish we could see the Isp number. I bet your right.

    By: bluemule on 6/30/09
    With Bernie Madoff pulling down 150 years for his Ponzi scheme today it seems likely that these local yokels like Miller, Brard, Guth, Yaguda, Kennedy etc will also be looking at some serious hard time in the pen when their day comes. How sweet it is!

    And while I do feel very badly for the folks who lost their life savings to these crooks, keep in mind that the most basic and primary rule of successful investing is diversification – don’t put all you eggs in one basket just in case it gets dropped. If some people were enticed to ignore this fundamental rule by the promise of above-market returns and they went all-in anyway – well, they got a very expensive lesson. Pigs get slaughtered.

    By: mo on 6/30/09
    Lifelongatasresident
    Sounds like you’re posts are originating directly from Wadsworth Ohio

    By: BeenThereDoneThat on 6/30/09
    Venom?? No venom here. I have these, “I’m so much better than other people,” posts to read, that I can laugh at the trolls they are. Thanks for the laugh.

    Oh and the post on Jay, I was laughing to myself while typing it.

    Go analize someone elso Freud. ;-)

    By: insider on 6/30/09
    Back in the day we would loose $745,000 and we would be happy about it. You youngsters and your new fangled ways. Yep back in the day we took the big one in the rear and just said give me some more. And we liked it. Yep we liked it.

    By: hurstinvestor on 6/30/09
    Lifelongatasresident- I agree with your opinion of the venom that permeates this blog as well as the ill effect it must have on one’s health. But you are the most forgiving that I have seen. The calculated risk that most of us took was that we might end up owning the land with at least a partially completed project, (since we were loaning funds for construction). As it turns out, our risk was not that the market collapsed, the risk was that the trustee for the money would stole it. It is important that this type of fraud be prosecuted as it will severely stifle investment and growth if all investment has to be done through a government investment insurance, (FDIC etc). If you have another $745,000, I would love to talk to you about some great opportunities that have been left in the wake of this mess.

    By: Clemintine on 6/30/09
    LifeLongAtasResident = Good ol’ Boy = Gearhart’s Buddy.

    Lost $745,000.00? Yea Right !

    By: Lifelongatasresident on 6/30/09
    Wow, you guys are so angry! I lost $745,000.00 with HFI and im not near as angry at them as you are. I have decided to take the high road on this, let the law figure it out. I have decided that getting angry as some of you are is only going to cause me health problems. Also I loved making that 12% interest and I knoew it was risky, so unlike most of you I accept some of the blame. When I read the articles this Karen writes I laugh, she is so off the mark and adds little things that have nothing to do with the news of it. Have a good day!

    By: insider on 6/29/09
    Real Property Lenders. I stand corrected. If I was the other guys I might change my name.

    By: Al on 6/29/09
    I don’t think any of these investors “got out” so the “clawback” concept probably does not apply. As an investor I received payments but they are nowhere near the original “nut”. I certainly hope “clawback” would not come into play… the current IRS issues are enough of a headache. 150 years in the slammer seems fair but I still want my retirement funds back.

    By: Paso_Guy on 6/29/09
    uh, Insider, it’s “Real Property Lenders” starring Rod Jarmin and Tammy Jordan…the company you mentioned is a legit property management company with no dog in the hard money debacle.

    Your welcome in advance

    By: insider on 6/29/09
    Did you make any money from Estate, Hurst, Century 21, or Real Property Management? Just saw a segment on CNBC on Madoff and the concept of Clawback. The BK trustees will go back as far as 7 years and take any funds made by investors to be equally distributed among all investors. So if you think you got away and weren’t you lucky to get out when you did watch out they are coming for you! If you got out and new something fishy was going on and managed to get only your principle out or even just a portion of your principle and think wasn’t I lucky. Wrong again! If you had any idea or they think you had any idea of what was going on get ready to give it back. Clawback! Look it up.

    By: BeenThereDoneThat on 6/29/09
    Did anyone see Miller’s mea-culpa in the Trib. Sat.?

    It really wasn’t Jay’s fault he didn’t get signatures to protect his investors.

    It really wasn’t Jay’s fault that he as well as others were duped.

    YEA RIGHT.

    Sure I will take a HUGE salary for doing jack squat?? Comon Jay. Get the soap and get ready for prison.

    Hell I’ll even throw in a BIG jar of Vasoline for you. Sand included of course.

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