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'Citizen of the year' gets 14 years in California fraud case

Published:Thursday | July 9, 2015 | 2:49 PM

A former California real estate developer once honored as his city's citizen of the year was sentenced yesterday to 14 years in prison for bilking investors who poured millions of dollars into failed development projects.

Kelly Gearhart, 53, pleaded guilty last year to wire fraud and money laundering as part of a plea agreement with prosecutors.

Los Angeles federal Judge Otis Wright sentenced Gearhart, who now lives in Ohio, after hearing on Monday from various investors who said the developer robbed them of their savings and ruined their lives.

"Kelly Gearhart is a thief and a liar," said LeNeya Ross, 63, who said she and her husband lost $85,000 they invested in one of Gearhart's projects. "He is the greedy one who deserves to lose all his money and freedom. That's what he took from the investors and their heirs."

Monetta Grabowski, 69, spoke through tears about how she wanted to turn the $27,000 she invested into a larger sum to supplement what she gets from retirement. Now it's all gone.

"We were not rich people," Grabowski said as Gearhart sat looking down. "Most of us can never earn the money back."

In all, Gearhart cheated more than 250 investors out of at least $15 million, federal prosecutors said.

In his plea agreement with prosecutors, Gearhart admitted selling the same lots in a real estate project to multiple investors, telling them that they would be paid back with interest. Gearhart also admitted using the same lots to get bank financing.

Gearhart's attorneys say their client got caught up in the 2007 housing collapse, disclosed his financial woes to investors and dipped into his own wealth to try to get the real estate projects finished.

"It's pretty clear that what was happening in the real estate market was impacting everyone," Firdaus Dordi, Gearhart's attorney, said in court on Monday. "Mr. Gearhart still believed at that time that he would somehow find his way through this. He had always found his way before, and he believed he was going to do it again."

Unlike other fraud schemes, Dordi pointed out, Gearhart had begun work on the projects people had invested in, even putting in access roads, utility extensions and other infrastructure at one project.

The federal prosecutor arguing the case acknowledged that Gearhart isn't the worst of the worst, which is why he said he requested an 11-year prison term instead of longer.

"This was not a Ponzi scheme in the sense that it was a purely fraudulent investment from day one," said Stephen Goorvitch, an assistant U.S. attorney. "Mr. Gearhart was a legitimate real estate developer. He misused money, and I think that distinguishes him from someone like Bernie Madoff, who started from day one intending to do fraud."

Gearhart had lived in Atascadero on California's central coast. In 2006, Atascadero's chamber of commerce city named Gearhart citizen of the year, citing $500,000 in charitable donations.

- AP