Former Atascadero developer Kelly Gearhart has been indicted on federal fraud and money laundering charges by a criminal grand jury that alleges he swindled investors out of millions of dollars solicited for local real estate projects. If convicted, Gearhart faces a maximum sentence of 300 years in federal prison.
The 16-count indictment, brought by a federal grand jury Thursday in U.S. District Court in Los Angeles, is based on several Gearhart projects from 2004 to 2008.
The 50-year-old Gearhart, who lives in Wadsworth, Ohio, will be arraigned Aug. 13 in federal court in Los Angeles.
He has not been arrested but is expected to travel to Los Angeles on his own accord, FBI spokeswoman Laura Eimiller said. The criminal charges are in addition to a $110 million bankruptcy filed by Gearhart in Ohio in 2009 and several lawsuits accusing Gearhart of fraud in connection with former Atascadero-based lender Hurst Financial Corp.
Gearharts case was investigated by the FBI and the IRS, with assistance from the San Luis Obispo District Attorneys Office.
The indictment charges Gearhart with 10 counts of mail fraud, four counts of wire fraud and two counts of money laundering.
He is alleged to have bilked investors out of millions of dollars for several Central Coast real estate projects and then used that money for other things, including maintaining a lavish lifestyle, according to a news release issued by the U.S. Attorneys Office.
The eight-page indictment outlines the scheme Gearhart is alleged to have used to defraud investors of money and property by means of material false and fraudulent pretenses, representations and promises and the concealment of material facts relating to certain real estate projects.
Gearhart is said to have solicited loans from victims of the scheme by falsely saying he owned specific land that would secure their investments.
He told investors the loans would be paid back with interest, according to the indictment, and that specific lots would be sold back to investors, which he promised to rent. He sold the same lots to multiple buyers, the indictment indicates.
However, the grand jury alleges that Gearhart did not own the land and was instead using investors money for his lavish lifestyle and for other luxury items; to make interest payments to other investors on other real estate projects; and to develop other projects.
The indictment lists four specific instances of Gearhart transferring large amounts of money ranging from $500,000 to $1 million from one San Luis Obispo bank account to another using a wire network.
Gearhart named 2005 Citizen of the Year by the Atascadero Chamber of Commerce was once a prolific builder known for his civic involvement in the North County.
He grew up in Atascadero alongside many other longtime residents friends and colleagues who would later invest millions with him as he built housing and commercial projects for nearly a decade. But in spring 2008, Gearhart could no longer meet interest payments and his real estate empire began to crumble into defaults and foreclosures.
His own historic home in Atascadero, among several of his real estate assets, was auctioned in September 2008, and Gearhart moved to Ohio.
Gearhart was a key developer who used funds from the now-defunct Hurst Financial Corp. It pooled funds from investors to make high-interest, high-risk loans that were to fund real estate projects.
Former Hurst Financial President James Hurst Miller who pleaded guilty to four counts of fraud and money laundering charges in 2011 and is set to be sentenced in October pooled investors money for real estate investments, promising them a high return. He then gave millions of dollars of loans to Gearhart, as well as other local builders, to develop the projects.
In 2007, the company had about $86 million in active real estate secured loans and more than 1,200 investors, according to state documents.
The company gave a $1.5 million loan to Gearhart through his corporation, Morro Road Homes LLC, and regulators allege that Hurst Financial worked with Gearhart to bilk some investors by transferring properties that secured that loan without their knowledge.
A timeline: The fall of Kelly Gearhart
Former developer Kelly Gearhart was once a prolific builder known for his civic involvement in the North County. But a federal indict-ment was brought against him Thursday, and he faces a $110 million bankruptcy and mounting lawsuits accusing him of fraud for an alleged Ponzi scheme that siphoned millions from investors.
Heres a look at Gearharts life in the spotlight since 2005:
2005: Gearhart was named 2005 Citizen of the Year by the Atascadero Chamber of Commerce.
Mid-2008: Gearharts real estate empire began to crumble into defaults and foreclosures.
September 2008: Gearharts own historic home in Atascadero, among several of his real estate assets, was auctioned. He and his wife, Tamara Lowe-Gearhart, moved to Ohio.
October 2008: Hurst Financial Corp. an Atascadero lending firm that lent Gearhart money for his development work surrendered its real estate license and closed its offices after its president, James Hurst Miller Jr., was accused of fraud by both the state Department of Corporations and Department of Real Estate. In 2007, the firm had about $86 million in active real estate-secured loans and more than 1,200 investors.
December 2008: Gearhart was found living on the top floor of an empty factory complex he owns in Wadsworth, Ohio. City officials said someone saw him hoisting a refrigerator into the building.
February 2009: Gearhart and his wife filed for bankruptcy protection, listing about $45 million in debts to 654 creditors and $6.45 million worth of assets, primarily real estate in Ohio and California. That number has now increased to $110 million in debts after an Ohio trustee alleged Gearhart was hiding assets.
July 2009: Gearhart faces mounting lawsuits accusing him of fraud in connection with Hurst Financial, as well as a criminal investigation into those dealings.
September 2011: Miller, the former president of the Atascadero-based Hurst Financial Corp., pleaded guilty to four counts of fraud and money laundering. Miller is scheduled to be sentenced in U.S. District Court on Oct. 29.
July 2012: Gearhart was indicted on federal fraud and money-laundering charges by the FBI.
Aug. 13, 2012: Gearhart is scheduled to be arraigned in federal court in Los Angeles.