Biz Buzz

Trial date set for lawsuit related to alleged Hurst Financial fraud

jlynem@thetribunenews.comJuly 11, 2013 

Kelly Gearhart stands in front of the Printery building in Atascadero in 2005.

JOE JOHNSTON — jjohnston@thetribunenews.com Buy Photo

Investors suing Stewart Title and Cuesta Title for their roles in a fraudulent scheme perpetrated by Hurst Financial Corp., its principal James Hurst Miller, and former Atascadero real estate developer Kelly Gearhart, will have their day in court.

San Luis Obispo Superior Court Judge Charles Crandall recently denied a motion to dismiss a lawsuit filed by investors suing Cuesta Title and Stewart Title. Crandall also denied a motion to dismiss a lawsuit against Heritage Oaks Bank, which loaned about $1.5 million in 2008 to Gearhart for development of the Vista Del Hombre project in Paso Robles.

A jury trial date has been set for July 29. Investors are seeking to recover about $80 million in damages caused by the title companies’ alleged wrongdoing, according to a previous story reported in The Tribune.

“The court repeats what it said in denying earlier motions for summary judgment: A serious fraud has plainly been perpetrated on a wide group of investors, which is reflected in the indictment and/or conviction of several key players,” Crandall said in court documents.

The investors, about 500 or so represented in eight cases, have alleged that the employees of the title companies knew of wrongdoing on the part of Hurst, Gearhart and Miller, and aided them by “misdirecting funds out of escrow that were specifically loaned for real estate construction, moving forward with questionable escrows containing contradictory instructions and eliminating valid liens through doubtful business practices,” according to court documents.

Heritage Oaks Bank is named because investors claim that the bank aided in the fraudulent scheme because it was “fully aware of, and assisted in, the fraudulent re-conveyances of the deeds of trust by Hurst,” according to court documents. That “allowed the bank to obtain a priority secured interest in the Vista Del Hombre real estate while effectively wiping out plaintiffs’ encumbrances (a claim or liability against real estate),” the court documents state.

In a four-year span between 2004 and 2008, “Gearhart helped Miller solicit about $73 million from private investors for 25 separate real estate developments, all of which eventually failed,” court documents state.

Gearhart has been indicted on 16 counts of fraud and money laundering in connection with misallocation of investor funds. Miller has pleaded guilty in federal court to four counts of fraud and money laundering.

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