Real estate developer faces fraud charges

LOS ANGELES - A real estate developer was indicted last week on federal fraud and money laundering charges that accuse him of bilking investors who put money into Central Coast real estate projects - money that was siphoned off for other purposes, including maintaining a lavish lifestyle, federal authorities allege.Kelly Gearhart, 50, was named in a 16-count indictment returned July 5 by a federal grand jury. The indictment charges Gearhart with 10 counts of mail fraud, four counts of wire fraud and two counts of money laundering. The indictment alleges that 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. According to the indictment, Gearhart failed to disclose a number of things to investors, specifically 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 the 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 a clear title to the land underlying the real estate projects. In this multi-million dollar case, the exact loss figure is expected to be the subject of litigation. Because of this, the government is not alleging a specific loss amount at this time, authorities said. The mail fraud and wire fraud charges each carry maximum penalties of 20 years in prison. The money laundering count carries a maximum penalty of 10 years. Therefore, if he is convicted on all 16 counts, Gearhart could receive 300 years in prison. Gearhart is expected to be arraigned "in the coming weeks," FBI officials said. The case against Gearhart is related to a case against James Hurst Miller Jr., the former president of Hurst Financial Corporation. Miller pleaded guilty in 2011 to four counts of fraud and money laundering charges. He is scheduled to be sentenced on Oct. 29.

********** Published: July 12, 2012 - Volume 11 - Issue 13