Prison stay for real estate fraudster Kelly Gearhart cut short amid coronavirus crisis
Convicted real estate fraudster Kelly Gearhart — once Atascadero’s Citizen of the Year — will be joining the rest of the country in sheltering at home after being released from federal prison three years early due to coronavirus precautions.
Gearhart, who was convicted of wire fraud and money laundering in federal court in 2014, was transferred from the Federal Correctional Institute in Morgantown, West Virginia, to a residential re-entry management office in Cincinnati, Ohio, yesterday, according to the U.S. Bureau of Prisons website.
The Cincinnati facility is one of 22 field offices nationwide that prepares inmates for release into the public or to home detention.
Gearhart, 58, had been scheduled for release from Morgantown in March 2023. His last city of residence was Wadsworth, Ohio.
It is unclear whether he will be required to spend the remainder of his sentence in home detention, be returned to a federal correctional facility, or be released from his sentence early.
Federal court records do not reflect the change in custody. Gearhart’s attorney, Los Angeles-based Steven Brody, did not return several requests for comment.
Representatives for the U.S. Department of Justice, which prosecuted Gearhart in District Court, told The Tribune they were unable to provide any information about Gearhart’s release, and referred questions to the U.S. Bureau of Prisons.
Thom Mrozek, Department of Justice spokesman, wrote in an email last week that the DOJ is not involved in any proceedings or decision-making regarding an inmate’s release to home confinement.
Mrozek said that there is no federal requirement that Gearhart’s victims be notified about his early release.
Contacted about Gearhart’s early release, Emery Nelson, public information officer for the Bureau of Prisons, said that for “privacy, safety and security reasons, we cannot discuss release plans for any particular inmate.”
Federal prisons react to COVID-19
Asked about early release of inmates in general, Nelson wrote in an April 21 email that, given the surge in COVID-19 cases at select sites and in response to U.S. Attorney General directives made March 26, the Bureau of Prisons is “reviewing all inmates who have COVID-19 risk factors, as described by the (federal Centers for Disease Control), to determine which inmates are suitable for home confinement.”
Nelson wrote that the Bureau of Prisons was originally focused on crafting a priority list of inmates in accordance with that directive/
But a subsequent memo by the Attorney General’s Office on April 3 asked the Bureau of Prisons to “immediately maximize appropriate transfers to home confinement of all appropriate inmates held in federal low-security facilities.”
That process was ongoing as of last week, Nelson wrote.
Nelson added that inmates do not need to apply to be considered for home confinement.
While all inmates are being reviewed for suitability, inmates who believe they are eligible may request to be referred to home confinement and provide a release plan to their case managers, Nelson said.
The bureau may then contact family members to gather information directing decisions concerning home confinement placement, Nelson wrote.
According to the Bureau of Prison’s COVID-19 website, the agency has approximately 142,255 federal inmates in federal institutions and 10,552 in community-based facilities. As of April 29, there were 1,534 federal inmates and 343 staff nationwide who had tested positive for the new coronavirus.
About 414 inmates and 132 staff have recovered from the virus, the agency says. There have been 31 federal inmate deaths but no staff member deaths attributed to COVID-19.
Kelly Gearhart convicted of wire fraud, money laundering
Gearhart was originally serving a 168-month sentence in the minimum-security Morgantown facility in West Virginia for his guilty plea to wire fraud and money laundering charges in U.S. District Court in 2014.
The charges stemmed from several real estate projects Gearhart spearheaded with an Atascadero hard money lender between 2004 to 2008 that federal prosecutors say may have cost investors upwards of $20 million.
Gearhart was indicted in 2012 on 16 counts of fraud and money laundering by a federal grand jury in U.S. District Court in Los Angeles.
The indictment alleged that Gearhart solicited investors to loan him money for various real estate projects, including Vista Del Hombre, a large-scale Paso Robles development that would have included a golf course and office park — telling stakeholders that their loans were secured with specific lots from the project and would be paid back with interest.
But the U.S. Attorney’s Office said at the time that Gearhart admitted in court that he sold the lots associated with the development project while using the same lots to secure bank financing.
When Gearhart defaulted on those loans and declared bankruptcy, his victims lost the collateral securing their loans.
Gearhart’s case was related to that of James Hurst Miller, Jr., an Atascadero lender and former president of Hurst Financial Corp.
Miller’s firm acted as a middleman and pooled investor money for various projects, promising a high return. He then gave millions of dollars in loans to Gearhart, as well as other local builders, to develop the projects, according to Tribune archives.
Miller, 71, also took a plea deal in the case, pleading guilty to fraud and money laundering charges and agreeing to testify against Gearhart. He was sentenced in 2015 to seven years in prison and remains in custody at the medium-security U.S. Penitentiary in Leavenworth, Kansas.
Miller is scheduled for release in December 2020.
Early prison release for former Atascadero resident
The early release is just the latest break caught by Gearhart. A judge shaved five years off his sentence in June 2019 in response to an appeal in 2015.
Gearhart had argued that the U.S. District Court Judge Otis D. Wright, II, erred when Wright sentenced Gearhart to 14 years for the three convictions when the statutory maximum he should have faced was 10 years.
On June 10, Wright re-sentenced Gearhart to a total of 108 months, or, nine years, with a release date in March 2023.
