UPDATE: Kelly Gearhart will be arraigned on Aug. 13 in Los Angeles.
LOS ANGELES — The FBI and the United States Attorney’s Office announced Thursday that former Atascadero developer Kelly Gearhart has been indicted on 16 counts of fraud and money laundering, accusing him of bilking investors who put money into Central Coast real estate projects, only to have him siphon it off for other purposes.
Gearhart, 50, who now resides in Wadsworth, Ohio, was named in the indictment, returned Thursday by a federal grand jury. It charges him with 10 counts of mail fraud, four counts of wire fraud and two counts of money laundering.
The mail fraud and wire fraud charges each carry a maximum penalty of 20 years in federal prison. The money laundering count carries a maximum penalty of 10 years in federal prison. Therefore, if he were to be convicted of all 16 counts in the indictment, Gearhart would face a maximum sentence of 300 years in federal prison.
The indictment alleges that starting in 2004, Gearhart fraudulently solicited investments in specific real estate development projects by falsely promising that he would use the funds to develop those projects. Gearhart also told investors that their investments — which he called loans and promised would be paid back with interest — were secured by specific lots.
But, according to the indictment, Gearhart failed to disclose that he was using victims’ funds to pay for his and his wife’s lavish living expenses, that he was using their money to develop different real estate projects than those intended by the victims, and that he was using victims’ money to make interest payments to other investors.
The indictment also alleges that Gearhart falsely promised that he would sell specific lots underlying the real estate projects and then rent them back from the purchasers.
The indictment alleges that Gearhart did not tell victims that he was selling the same individual lots to multiple purchasers and that he did not intend to transfer the promised lots to them. The indictment further alleges that Gearhart did not tell victims that he did not have clear title to the land underlying the real estate projects.
The government is not alleging a specific loss amount at this time, due to litigation, other than that it runs into the millions of dollars.
Gearhart will be summoned to appear for an arraignment in United States District Court in Los Angeles in the coming weeks.
The case against Gearhart is related to a case against James Hurst Miller Jr., the former president of the Atascadero-based Hurst Financial Corporation.
Miller pleaded guilty in September 2011 to four counts of fraud and money laundering charges. Miller is currently scheduled to be sentenced on Oct. 29 by United States District Judge Otis D. Wright II.
For the complete article see the 07-06-2012 issue.
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