A North County lender who acted as a middleman for disgraced developer Kelly Gearhart was sentenced Monday to seven years in federal prison for his role in a Ponzi scheme that defrauded hundreds of investors, according to the U.S. Attorney’s Office.
James Hurst Miller, 67, had previously pleaded guilty to four counts of fraud and money laundering. As a condition of his plea, he had agreed to testify, if needed, against Gearhart, who was sentenced to 14 years in federal prison in July.
Gearhart, a prominent developer and former Atascadero Citizen of the Year, began committing fraud in 2004, according to the U.S. Attorney’s Office, raising money with the aid of Miller’s business, Hurst Financial Corp. Working as a middleman, federal prosecutors contended, Miller recruited investors, executed investment contracts, collected funds from investors and gave money to Gearhart, who eventually misused investor money to fund his own lavish lifestyle.
According to a sentencing position filed by the U.S. Attorney’s Office in the U.S. District Court for the Central District of California, Miller enlisted in the Air Force in 1966 and was awarded a Good Conduct Medal before being honorably discharged. He attended San Diego State University on the G.I. Bill and started Hurst Financial in 1982, dealing with reverse mortgages and private placed funding.
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“In other words, Hurst Financial would act as a ‘middleman’ between individual investors and real estate developers, including Kelly Gearhart,” reads the position, filed by Assistant U.S. Attorney Stephen Goorvitch.
Miller misused money earmarked for three different proposed development projects and signed documents that allowed Gearhart to steal lots in one of those projects that were securing victims’ loans. While Miller profited from 3 percent commissions and a half percent service fee on each loan, federal prosecutors alleged, “unlike Kelly Gearhart, defendant Miller did not use victim money wholesale to fund his lavish lifestyle.”
“Defendant Miller was not a sociopath who set out to defraud his victims, like many who perpetrate Ponzi schemes,” Goorvitch wrote. “Rather, defendant Miller was an established businessman who committed certain crimes when faced with economic difficulties.”
Gearhart’s biggest real estate project was Vista Del Hombre, a Paso Robles golf course on which Gearhart vowed to build an office park. On that project, Miller used some of the investor money to pay off older loans unrelated to Vista Del Hombre and to make interest payments on another developer’s loans, the prosecution alleged. For that same project, Miller falsely represented that Gearhart was legally entitled to all right, title and interest in the lots, even though they were being used to secure investors’ loans. Gearhart then used those lots to obtain more than $3 million in loans. When Gearhart defaulted on those loans and declared bankruptcy, the victims lost the collateral securing their loans.
According to federal prosecutors, however, Gearhart lied to both Miller and investors about the funds.
“Although defendant Miller told victims that Gearhart would use their funds to develop the VDH project,” Goorvitch wrote, “in doing so, he appears to have relied on Gearhart’s (false) promises to him.”
Miller’s crimes had a “devastating impact” on the victims, Goorvitch wrote, and a seven-year term would protect the public by preventing Miller from returning to real estate development. In his favor, Goorvitch added, Miller agreed to plead guilty much sooner than Gearhart and assisted the government in its case against Gearhart.
“Defendant Miller also agreed to testify against Gearhart at trial and/or sentencing, which would have assisted the government’s prosecution of that case” and which “likely played a role in Gearhart’s decision to plead guilty.”