Judge dismisses Gearhart’s bankruptcy protection
November 10, 2010
A federal judge has ruled that Atascadero developer Kelly Gearhart’s bankruptcy was applied for fraudulently and as of October 7 his creditors may legally go after his future earnings, according to a November 8 court order.
“They can sue him for a judgment, but they cannot go after properties or assets in his name because the bankruptcy trustees have the right to administer those assets and provide distributions to the unsecured creditors of the estate,” said trustee attorney Ken Gibson who noted it would probably take a year to liquidate the assets.
Gearhart and his wife Tamara Lowe filed the bankruptcy petition in February 2009, claiming $6.5 million in estimated assets and $45.1 million in estimated debts. The couple was accused of helping to defraud investors of more than $100 million in an alleged Ponzi scheme. They moved to Wadsworth, Ohio, in 2009 following threats of physical violence by an angry investor.
Gearhart filed the bankruptcy petition in the Northern District of Ohio U.S. Bankruptcy Court.
In July, bankruptcy trustee Harold Corzin made a request for the dismissal of Gearhart’s bankruptcy protection because he had fraudulently transferred and concealed assets. Specifically, Gearhart and Lowe failed to mention ownership in numerous properties and businesses including the Atascadero Printery building, Atascadero All Night RV Park, Atascadero based Print and Copy Solutions and the Links golf course in Paso Robles.
The couple disclosed 12 active bank accounts even though they had more than 50 different accounts when they filed bankruptcy, according to court records.
The trustees also contend Gearhart and Lowe failed to properly report money made through the sale and transfer of vehicles.
For example, investigators discovered that within 90 days of his bankruptcy filing, Gearhart transferred the title of a 1956 Chevrolet. The undisclosed recipient of the transfer sold the Chevrolet for $74,600, put $40,000 in a U2 LLC account and kept the remainder for himself.
In addition, the couple has failed to account for approximately $5 million in personal property that was listed on previous financial statements or informed the court of $10,000 payment to the Planet Hollywood Casino.
Even though the trustees believed that Lowe shared some culpability for the non-disclosure of assets, the trustees agreed to release her from future liability from creditors as part of the compromise. The trustees noted that the creditors did not have any substantial claims against Lowe.
In an objection to the proposed compromise, Murray Powell, an investor in the alleged Ponzi scheme, said that Lowe should not be allowed bankruptcy protection because of her involvement in fraudulent business activities. For example, Powell noted how monies he invested for the construction of a project were transferred into the Gearhart and Lowe’s personal bank account.
“Why release her to have an agreement with Gearhart when they had him dead to rights,’ Powell said.
On October 25, Federal Judge Marilyn Shea-Stonum agreed with the trustees’ assertion that Gearhart was the more culpable party and approved the compromise.
“The proposed compromise will not affect any potential criminal liability of the debtors…,” Shea-Stonum said in the order authorizing the compromise.
Gearhart is also one of the subjects in a two-year racketeering, money laundering and wire fraud investigation by the FBI that includes Gearhart’s former business associate Jay Miller of Hurst Financial. Last year, the allegations were heard by an impaneled federal grand jury.
The Fifth Amendment to the U.S. Constitution requires that charges for all capital and “infamous” crimes be brought by an indictment returned by a grand jury.
Because of secrecy involving the grand jury, hidden assets discovered by the criminal investigators cannot be shared with the bankruptcy trustees until an indictment is made. Meanwhile, the two year time period for the discovery of assets to be included in the bankruptcy for distribution to creditors comes to a close in early 2011.
“I am very frustrated that these indictments have not been made public,” trustee attorney Gibson said. “I have shared a lot of information with U.S attorneys and the FBI and because of grand jury secrecy there is no return.”