Gearhart indicted, facing 300 years in federal prison

July 5, 2012

Kelly Gearhart and James Hurst Miller

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.


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Mr. Holly

Wouldn’t be something if all 3 Citizens of the Year went down on this?

Gearhart,McKinney and Jones. Maybe Las Vegas should start taking book on this. Be interesting to see what the odds might be.

Nancy Meek’s where are you?


Cindy

I think it’s highly possible that Grigger Jones might go down on this. He was the attorney that helped them to make everything look pretty. He also filed several LLC’s to launder embezzled funds that Gearhart funneled into the PI JI Ho Ta endeavor. Between Jay Miller talking to get less time in a civilized prison and Gearhart facing 300 years, they will, if they haven’t already tell all and we all know how felons attempt to place less blame on themselves and more on their conspirators, i.e. I was there but he pulled the trigger.


Apparently, the arrests will come down soon now that they had indicted both Gearhart and Miller. I’m told that they will “all be” taken into custody at the same time. In the mean time, Gearhart is left to contemplate what else he might want to cough up before he cuts a plea deal or goes to trial. I do also wonder about Wade McKinney, if Gearhart has something on him, he will talk for sure and according to his stepmother (Marion Warner) he has plenty. Didn’t she say that he was paying Wade off?


Nancimeek

I’m right here. waiting patiently for justice and the truth to finally come out. Wearing a big smile on my face tonight.


http://imokproductions.com/home


mustangglp

This has been to long in coming! hopefully he will be tried in SLO county.


SmilingJack

I guess Fresno Federal Court, as it’s the closest.


obispan

Hmm, 25%… It would seem to be in the interest of the US Bankruptcy Count to move forward with the project. They have experience managing people in the process of losing their money. The feds sure need the revenue to pay bills and I’m a big fan of voluntary taxation of the stupid.


Spirit Filled

Years ago my wife and I were asked to invest some money in one of these get rich schemes. Well at least make a lot more interest money than any one else was offering but we declined. Sounded too good to be true. Which usually means it really is too good to be true.


The couple that ask us to buy in lost a lot of money. More than I could afford to lose. We got a small amount of interest but we kept the money.


pasoparent5

Now what happens…Gearhart & Hurst have been indicted (good!) but how long until they’re both actually arrested?


MikeB

Oh what a difference 5 years can make …


Here is the headline and first paragraph from a story in the Tribune dated June 12, 2007

————————————

GEARHART WAS UNFAIRLY TARGETED


Atascadero Mayor Pro Tem Mike Brennler has a little egg on his face following his premature request to have the police chief look into what he believed to be fraudulent activity by the city’s most prolific builder, Kelly Gearhart.

————————————-

There is little consolation in declaring I told you so, because so many good north county people were financially ruined by this man.


But I am proud what I stood for and what I did in trying to bring some accountability to ATown.


Gsan

I wonder who he will take down with him.


BeenThereDoneThat

This is nothing but pure speculation on my part but I could honestly say I wouldn’t be surprised if McKinney came into play. Not saying he is involved but just that I wouldn’t be surprised.


MikeB

If he is smart he will spill it to the feds in order to help keep his wife out of the fray.


Much of the planning commission of that time is suspect. Fonzi and Bob Kelly voted in lockstep for Gearhart. Word has it that Gearhart complained to the Community Planning Director (Frace) that Fonzi was sweating him for appliances in the homes she sold for him but that as long as she was voting for his projects he had to put up with it.


McKinney the other “Citizen of the Year” should be indicted along with Gearhart for all the funny business involving the Printery building.


Clay and O”Malley are also highly suspect as they too voted in lockstep for Gearhart and even complained publically about the fact that I was picking on Gearhart for demanding he follow the rules.


The bottom line is that your dealing with Atascadero elected officials and admin your dealing with a rogues gallery


Mr. Holly

Remember Mike that you too voted approval for the Kelly Gearhart projects while you were on the city council. The Planning Commission is made up of 7 members who voted in favor of the projects. Could you please identify the projects that YOU think are bad and which ones that you are claiming were “lockstepped” beyond the normal actions of the city council and planning commission. Usually the only 2 no votes were Ellen Beruad and occassionaly Joan O’Keefe, although her no votes were related to tree issues. Mrs. O’Keefe normally voted in favor of the Gearhart projects.

Does a yes vote mean lockstepped?


MikeB

Sorry Mr. Holly: As I recall I voted on two Gearhart projects (Eagle Creek and the Triangle Property). I believe I voted no on each project, one because of principle.


I did the research on Fonzi, Kelly, O’Malley and Clays voting records related to Gearhart projects. Do your own research and you will understand what I mean by “lockstep”


In retrospect my comment that “much of the planning commission is suspect”, is indeed overly broad and I retract it.


As related to Commissioner Okeefe, although I didn’t agree with some of her advocacy issues, I found her to be one of the most thoughtful and dilligent commissioners on the planning commission


obispan

The newspaper is only of of many ways to advertise real estate so The Trib had to look out for #1. They NEVER offend the real estate or automobile sales businesses if it can at all be avoided. What did Brennler have to offer? 8 bucks a month for month delivery?


BeenThereDoneThat

Yea between the Trib and toilet paper, I can’t figure out which is the better deal to use each day.


obispan

Toilet paper is much cheaper and does it’s job better.


pasoparent5

Thank you, Mr. Brennler. You ruffled a lot of old timers’ feathers (and continue to do so, I think) but you never backed down with your assertions. I’ve mentioned before on CCN’s chatboard how I used to think you were a muckraking troublemaker who liked to stir up the pot. I wondered why you wouldn’t just be quiet and listen to the revered A-town leaders O’Malley, Clay, McKinney, et al… Obviously I was so wrong. I admire you for continuing to speak the truth, even when you are/ were ridiculed.


And I appreciate CCN for thoroughly investigating this story when the local birdcage-liner-of-a-newspaper merely looked the other way…as it did w/Chittygate here in Paso and soooo many other scandals. Someone can be a “Person of the Year”, the city’s “Top Cop”, or whoever…but local residents have a right to know the truth about these people and CCN’s been diligent in uncovering the facts.


obispan

I do have two questions though. 1) Why would a city police department investigate investment fraud? If you were to complain that your cosmetologist did a horrible job and did not abide by the regulations or your contractor ripped you off you would be referred to the appropriate licensing agencies, it’s not the same as a bad check or counterfeit bill. We all now know that due to business-friendly deregulation the agencies enforcing the rules in place to protect hundreds of millions/billions/trillions of dollars of people’s money have been gutted. Hell, the Board of Cosmetology or CSLB can put you out of business with the stroke of a pen and it would be up to you to prove to them that you were in full compliance with the law. 2) How were City officials complicit? By bending over backwards for a prominent developer? Hello, can you say Copeland/Madonna/Rossi/King (but not poor Ernie Dalidio – should have hosted more cocktail parties or supported the right people)?


CitizenB

#1 is a good question. Maybe it goes to the extent of the fraud, and the fact that it went beyond the bending of regulations to outright criminal activity? I’m thinking a true con artist running a Ponzi scheme or similar gets busted by the police, not the SEC.

#2 goes to rumors of payoffs and kickbacks to said City officials. Rumors only, but if true it means they go beyond being cooperative yet ignorant, to being actively involved and on the take.


obispan

#1) “To the extent of the fraud”? This wasn’t a three card monte game in front of a liquor store (“PD dispatch”. “Yes, I’d like to report a THEFT. Can you send an officer right away?” “What was stolen?” “Well, I invested my money through a licensed mortgage broker at 12% and got paid for a while, but suddenly…” Hell, we just found out the international banks have been manipulating the Lipor, jacked everyone’s interest rates on 350 trillion (that with a “t” journalists) on everybody’s loans for the London and Wall Street skim – the Mafia were dago amatuers. #2) What could you pay someone to do that is not public record? A pro-development council and planning commission voting in favor of development is no surprise. How the SLO council subsidizes developers and pays so much money for hideous public art (hideous public art must be free-enterprise in Atascadero, but oddly enough subject to “excessive government regulation”), continually puzzles me.


SLOChuck

Congrats CCN for breaking this story and seeing it through to the end.


womanwhohasbeenthere

Yes indeed, CalCoast News does the only investigative reporting around here.


If you want to see investigative reporting continue, ADVERTISE on CalCoast News, and SUPPORT these businesses that advertise here.. This type of hard footwork is not cheap and we the readers get this information for free. Let’s support this local business – and the businesses that advertise here.


BeenThereDoneThat

Well as I have stated before, seeing as Kelly reads these boards I say this to you Kelly. You say you are innocent? Fine innocent till proven guilty. Now you can sit before a jury of your peers. If you are found innocent then I will live with that. If you are found guilty, then you will have to live with that.


fat chance

It’s about time….it’s great seeing him finally go down.


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