After two months of jury selection and witness testimony, an investment fraud trial involving former Atascadero builder Kelly Gearhart is expected to wrap up next week when attorneys offer closing arguments.
The defense formally rested its case Friday in the complex trial, which featured eight plaintiffs, three defendants and 550 exhibits.
“It’s been a long trial,” San Luis Obispo Superior Court Judge Charles Crandall told jurors Friday. “There’s a lot we still have to do.”
The plaintiffs are suing three escrow companies, claiming they lost more than $3 million in a Ponzi scheme that included construction projects Gearhart promised but never built. The plaintiffs charge that hard-money lender Jay Miller, of Hurst Financial, took loans from the investors to pay for the projects, and Cuesta Title — along with Stewart Title of California and its sister company, Stewart Title Guarantee — acted as the escrow companies.
The plaintiffs claim that instead of paying for new developments, their investments were used to pay other investors. The escrow companies failed to disclose the scheme, the plaintiffs claim.
“This case is about deception,” attorney David Noonan, representing the investors, told jurors during his opening statement at the beginning of the trial. “It is about greed. And it is about a very profound and fundamental betrayal of trust by the defendants.”
While Gearhart and Miller were charged with criminal offenses for their alleged actions in the case, the escrow companies share the blame because they knew what Gearhart and Miller were doing, Noonan said.
“The escrow company is supposed to be in the middle,” he said. “They’re the checks and balances.”
Mack Staton, an attorney for the defense, however, said the escrow companies merely followed the instructions of the parties — as required — and that the plaintiffs ignored the risks of their investments in a staggering economy because they had previously enjoyed excellent returns from the parties.
“They were anxious to earn,” he said in his opening statement. “They got lulled into a sense of security.”
The scheme became apparent, he said, when the real estate market crashed, and the flow of money stopped.
Plaintiff Patricia Bellando-Roberts claimed she lost $1.1 million because of the scheme, while Lothar and Anneliese Stephan — an elderly couple originally from Germany — allegedly lost $522,000. Other plaintiff losses ranged from $30,000 to $520,000.
Closing arguments are expected to begin Tuesday.
Gearhart, who has since moved to Ohio, was indicted on 16 counts of fraud and money laundering. Miller pleaded guilty to four counts of fraud and money laundering in federal court.
Neither testified during the civil trial.