Gearhart indicted, facing 300 years in federal prison
July 5, 2012
Update: Under the original story.
Onetime Atascadero “Person of the Year” and prominent North County land developer Kelly Gearhart has been indicted by a federal grand jury and faces 16 charges of mail fraud, wire fraud, and money laundering. Investigators are calling it a “multi-million-dollar case.”
Assistant United States Attorney Stephen I. Goorvitch of the Major Frauds Section said in a statement that the charges revolve around accusations of Gearhart’s “bilking of investors who put money into Central Coast real estate projects – money that was siphoned off for other purposes, including maintaining a lavish lifestyle.” If convicted, Gearhart could face as much as 300 years in federal prison.
Gearhart’s questionable financial dealings were brought to light in a lengthy, ongoing series of articles by CalCoastNews starting in 2008. The developer threatened to sue the news website following the publishing of articles outlining his questionable investment activities in one particular project, the Vista del Hombre golf and business park located on the outskirts of Paso Robles. That lawsuit never materialized, although the website received letters from Gearhart’s attorneys, as well as Gearhart’s personal denial and threats voiced on Dave Congalton’s Home Town radio show on KVEC920.
Gearhart, 50, currently resides in Wadsworth, Ohio. He has not been arrested, federal agents said.
Investments in specific real estate development projects were fraudulently solicited by Gearhart, promising development but never delivering. He failed to disclose “a number of things,” said Goorvitch, “specifically that he was using victims’ funds to pay for his and his wife’s lavish living expenses, that he was using their money to develop different real estate projects than those intended by the victims, and that he was using victims’ money to make interest payments to other investors.”
He also sold various properties to numerous victims, the indictment alleges, without owning clear title to the properties.
Gearhart’s primary hard money lender, James Hurst Miller, already is under indictment on related charges.
UPDATE: Gearhart is slated to be arraigned in federal court in Los Angeles on August 13.
The government is alleging that Gearhart used victims’ funds intended for specific real estate projects to develop different projects. He also allegedly used those same funds to make interest to other investors in the real estate projects.
As part of his scheme to defraud, Gearhart also “concealed his material misrepresentations and omissions from victims, and lulled… victims into maintaining their loans” with Gearhart, according to the indictment.
Mail fraud allegations stem from a variety of checks mailed during 2007-08 from Hurst Financial Corp. (HFC), Miller’s company, to a group of individuals identified in the indictment only by their initials.
He also wired money with intent to defraud, federal authorities allege. On Oct. 5, 2007, he electronically wired $1.5 million from one local bank account to another in three separate communications. He followed that with a transfer of $1 million on Aug. 21, 2007. all of those funds went into City National Bank in San Luis Obispo.
One of the two money laundering charges derives from a payment of $25,600 to Pe-Ji-Ho-La, LLC.
Marion Warner, Gearhart’s common-law stepmother of 35 years, told CalCoastNews that Gearhart had boasted of his master plan for financial freedom. He planned to build his empire on borrowed money stashing funds, properties and jewels until the perfect time to file bankruptcy.
A group called PMA, now Pe-Ji-Ho-Ta, entered into an agreement with the the Salinan Indian Nation. Gearhart and his partners projected the agreement would result in earnings of approximately $600 million in profits over the next 50 years, according to Pe-Ji-Ho-Ta records.
Amidst assurances that then President George W. Bush was poised to sign off on the first step towards the development of an Indian owned casino in Paso Robles, the Salinan Indian Tribal Council entered into an agreement with PMA.
Gearhart was one of the members of PMA, along with attorney Grigger Jones, Chris Molina and Dan Phillips, to signed a contract with the tribe located in San Luis Obispo and Monterey counties in order to speed the tribe’s application for federal recognition – all with the goal of eventually building a large Indian gambling casino on the northeast side of Paso Robles.
Molina, one of four men who told the tribe they could secure federal recognition, boasted his group had a politician poised to fast-track their plans. Without a member of Congress or a U.S. president pushing for approval, the procedures required to procure federal recognition for an Indian tribe usually takes about 20 years, according to tribal council meeting minutes.
Although no federal official was publicly linked to the project, Molina, who is also a tribal member, used former President Bush’s name in promoting the project before Bush left office.
In March 2003, Molina introduced attorneys Tom Tellefsen and Jerry Levine to the tribal council as two men who could shorten the timeline for federal recognition from 20 or more years to a few months because of their ties to the Bush administration.
Tellefsen and Meg Whitman were former Massachusetts Gov. Mitt Romney’s national finance co-chairs during his 2008 presidential run. Levine is a business and litigation attorney with the Los Angeles based Holland & Knight law firm.
“Mr. Tom Tellefsen is exactly who he says he is, and is in the position to compress the timeline for completion of the task,” tribal confidential documents say. “The law firm that has been chosen for us is not only one of the largest in the world, but it is politically aligned with the current administration. Phil Hogan was Jerry Levine’s partner until the appointment to the National Indian Gaming Commission by President Bush; Tom Tellefson is a close friend of George W. Bush.”
Molina assured the tribal council that Levine was there to represent the tribe and not PMA, even though PMA would cover all attorney fees, according to the minutes of a March, 2003 tribal council meeting. It was an assurance the tribal leaders said he failed to follow through on.
In October 2003, PMA changed its name to Pe-Ji-Ho-Ta Consultants LLC and had Joe Diehl of the San Luis Obispo law firm of Diehl and Rodewald file a lawsuit against the Salinan Tribe, claiming fraud, breach of contract, and intentional misrepresentation for canceling their agreement to give Gearhart, Molina, Jones and Phillips a cut of future casino revenue in exchange for helping the tribe receiving federally recognized. The suit asked the tribe to return $20,000 in expenses as well as $2.5 million for lost revenue to Pe-Ji-Ho-Ta.
The tribe later agreed to reenter into an agreement with Pe-Ji-Ho-Ta Consultants LLC.
Pe-Ji-Ho-Ta and the Salinan Tribe’s plans call for building a 250,000-square-foot gaming casino, homes for about 400 people, a school, a hospital and a “green” energy plant on 2,500 areas they plan to purchase in either North San Luis Obispo County or South Monterey Counts, according to their business plan.
Because of Gearhart’s bankruptcy and other problems with authorities, the U.S. Bankruptcy Court now owns Gearhart’s 25-percent share in Pe-Ji-Ho-Ta’s portion of future casino profits.
This article will be updated as more information becomes available.