Developer’s Real Estate Scheme Leaves Investors High and Dry

Developer’s Real Estate Scheme Leaves Investors High and Dry

A former Atascadero real estate developer, Kelly Gearhart, 53, has pleaded guilty to federal fraud and money laundering charges for bilking investors who put money into Central Coast real estate projects. Gearhart, who currently resides in Wadsworth, Ohio, pleaded guilty to two counts of wire fraud and one count of money laundering.

According to the plea agreement, Gearhart admitted to knowingly and intentionally making misrepresentations and omissions relating to the Vista Del Hombre real estate development project to induce victims to part with their money. The indictment alleged that Gearhart told investors that their investments – which he called loans and promised would be paid back with interest – were secured by specific lots.

However, Gearhart admitted in court that he sold lots associated with the Vista Del Hombre real estate development project, even though those lots were being used to secure others’ loans. He further admitted that he used those same lots to obtain bank financing. The plea agreement allows prosecutors to prove at sentencing that Gearhart made additional misrepresentations as part of the scheme.

Gearhart is scheduled to be sentenced by Judge Otis D. Wright II on December 29. The wire fraud charges each carry a statutory maximum penalty of 20 years in federal prison, while the money laundering count carries a statutory maximum penalty of 10 years in federal prison. Prosecutors intend to seek a sentence of 135 months in federal prison, while Gearhart’s attorney said he will not seek a sentence below 57 months.

The plea agreement permits prosecutors to seek restitution for victims of the Vista Del Hombre real estate development project, as well as any other project in which there was fraud, a figure that may be as high as $20 million. It is unclear if there is any money available to repay victims.

The case against Gearhart is related to a case against James Hurst Miller Jr., the former president of the Atascadero-based Hurst Financial Corporation. Miller, who previously pleaded guilty to fraud and money laundering charges, is scheduled to be sentenced by Judge Wright on September 8.

The cases against Gearhart and Miller are the result of an investigation by the Federal Bureau of Investigation and IRS – Criminal Investigation.

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