Probation department seeking low sentence for Gearhart

May 16, 2015
Kelly Gearhart

Kelly Gearhart


With just two weeks until Kelly Gearhart’s sentencing hearing, his probation officer and federal prosecutors are disagreeing over the number of the defendant’s victims, a fact that partially determines sentencing guidelines.

While both sides agree on most information in the presentencing investigation report, prosecutors contend Gearhart had over 250 victims while the probation department says there were only 17 victims. The probation department considered only investors Gearhart spoke directly with as victims.

Gearhart concedes he should spend 57 months in prison, the probation officer is seeking an 87 month imprisonment and prosecutors are asking the court to sentence Gearhart to 135 months in federal prison.

Gearhart and James Miller, the former president of Hurst Financial, defrauded more than 1,200 investors of more than $100 million in an alleged Ponzi scheme. Gearhart bilked investors who put money into Central Coast real estate projects and then siphoned off the monies for other purposes.

Even though Gearhart defrauded hundreds of victims , the government based its case on several frauds including Gearhart’s largest, his Vista Del Hombre project in Paso Robles.

“The bulk of the government’s case focuses on Vista Del Hombre because there is the strongest evidence of fraud,” prosecutors said in court documents. “There are, however, other projects and victims at issue in this case.”

The probation officer composed the presentencing investigation report that finds that Gearhart had direct contact with 15 investors and two banks in the projects federal prosecutors focused on while making their fraud case.

“The presentencing investigation report finds that there were 10 victims (of Vista Del Hombre) who communicated directly with defendant and invested based upon his false promises,” the government’s sentencing position says. “For purposes of sentencing, the losses for these victims are $2,370,000.”

Gearhart got his first loan for Vista del Hombre’s purchase and initial infrastructure construction in May 2006 from Miller in the amount of $15 million. Miller in turn had secured that money from private investors lured by promises of high interest returns. That initial loan was slated to mature in late 2006, but Hurst did not reimbursed investors and in late 2007 Miller ceased providing interest payments.

But by then, Hurst had already lent Gearhart another $11,850,000 for the Vista del Hombre development. These investors received interest payments for only six months before the payments abruptly ceased.

Miller’s QuickBook records seized by federal agents show that of the $17,995,302 Miller doled out to Gearhart for Vista Del Hombre, Gearhart only spent $2,659,302 on developing the project with the remainder ending up in Gearhart and his wife’s bank accounts.

Kelly Gearhart and James Miller

Kelly Gearhart and James Miller

“Regardless of how he spent the money, defendant still ‘stole’ the lots securing the victims’ investments, sold them to different people, and then used them to obtain bank loans that he could not pay back,” according to the government’s sentencing position. “So, even if defendant spent every penny of the VDH money lawfully, there would still be fraud upon the over 250 VDH investors.

In an April 1, 2008 letter to investors, Gearhart admitted to some investors that he was financially strapped and unable to pay interest on many of his Hurst loans and detailed his plan for financial recovery:

“Obviously, I have formulated a detailed strategy to work my way through liquidating my large portfolios,” Gearhart wrote. “Several of my properties are in escrow at this time, and the sales of these properties will enhance my ability to move forward. I realistically see only these options at this time: 1. Elimination of interest payments, while I work to liquidate properties as fast as possible. 2. As offers are made on properties, I will notify you and we will make a joint decision as to whether we should accept the offers presented. 3. Foreclosure.”

According to prosecutors, the letter was an attempt by Gearhart to lull his victims and as such he should be found guilty of defrauding more than 250 investors.

“Defendant victimized all of the VDH investors because he ‘lulled’ them into maintaining their investments,” the government’s sentencing position says. “For example, defendant sent out a ‘lulling’ letter near the end of the fraud. Lulling conduct is part of the scheme charged in the indictment.”

In May 2014, Gearhart agreed to plead guilty to three charges in connection with the Vista Del Hombre project.

Gearhart’s sentencing hearing is scheduled for June 1 at 11 a.m. in Los Angeles.

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Kelly Gearhart  Court Documents by CalCoastNews

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I can’t really say I feel to sorry for the people that invested money in this rat anyone with common sense could tell he was a snake oil salesman. I bet he doesn’t serve 6 months .