Sentencing for Kerley delayed again; hearing to resume next week

May. 31, 2013 @ 04:33 PM

KNOXVILLE — After being rescheduled four times, former Sevierville attorney Jerry Kerley stood before a federal judge Thursday ready to receive his sentence for a mortgage fraud scheme. But at the last minute, Judge Thomas Phillips' decision was delayed once again.

Prosecutor F.M. Hamilton and defense attorneys Wade Davies and Thomas Dillard had argued most of the motions they had filed, and Phillips had ruled on several factors that could enhance or decrease Kerley's sentence. However, at the last minute Hamilton acknowledged that the prosecution had filed some materials related to potential restitution for Kerley in an email to the court Thursday morning, and that the defense team might not have had time to review it or to file any new motions regarding the material.

Hamilton told the judge he was very concerned about the email, and that there had been a misunderstanding about how it should be relayed to the defense. Because of that, he said the prosecution would have no problem delaying the restitution phase of the judge's decision. Phillips said he was inclined to handle all those issues on the same day. After conferring with Kerley, the defense agreed to continue the case until next Thursday.

That will give the defense time to file a motion related to the new information if necessary, and the prosecution a chance to respond to that motion. Phillips admonished Hamilton to make any new motions or arguments before his deadline of noon Wednesday, and not in court Thursday.

Hamilton declined to comment on the email when asked about it after the hearing.

It was a stunning delay, coming as the judge appeared set to announce Kerley's sentence on charges of wire fraud, bank fraud, money laundering, and conspiracy to commit wire fraud and bank fraud. He is facing up to 30 years in prison for each count of fraud and conspiracy, and up to 10 years for money laundering.

In fact Kerley, now 60, had just finished addressing Judge Phillips, tearfully asking him to "judge me based on my full 60 years and not the few months contained in the record."

Kerley's voice broke as he thanked the people who came to support him Thursday. More than two dozen people were present, and most appeared to be there to back Kerley. They included Sevierville Alderman Devin Koester, to whom Kerley once acted as a mentor in his law practice; Koester's mother, Donna Koester, who is executive director of Safe Harbor Child Advocacy Center; and local businesswoman Betty Ogle.

Kerley choked up as he acknowledged the court had received more than 100 letters asking Phillips to be lenient. Those letters, which are entered in the court record, include support from the Koesters and Ogle, Pigeon Forge Mayor David Wear, Pigeon Forge City Judge David Webb, Register of Deeds Sherry Robertson Huskey, Director of Schools Jack Parton, Sevierville Public Building authority chairman Joe Tarwater, and a number of attorneys, Realtors, doctors, pastors, family members and former employers.

He suggested some of those letters should be read as his eulogy.

"I will have to lead a very exemplary life to live up to the standards set in those letters," Kerley told the judge.

Kerley and his codefendant, developer Jeffrey Whaley, were convicted in a May 12 federal trial of a complicated fraud scheme in which they would get "straw borrowers" to obtain mortgage loans under false pretenses, including making down payments on the houses with other funds while claiming the money came from the borrower. Kerley oversaw the transactions through his title company, Guaranty Land Title, while Whaley did business as GBO Enterprises.

Whaley's sentencing is set for July 1.

Davies, one of Kerley's attorneys, argued that, while the jury convicted Kerley for his part in the scheme, he didn't play nearly the role that Whaley and others did. Some other parties involved in the scheme accepted plea agreements and testified against Kerley and Whaley.

Kerley, according to court documents, only collected the $27,000 in fees his company would ordinarily have taken from the transactions. Whaley, by contrast, was shown to collect more than $740,000. He hadn't recruited the straw borrowers and wasn't directly involved in that, although he signed off on the transactions through the title company. In fact, Davies argued, the banks should have taken more precautions on their loans instead of allowing the low document loans used in this case and in others that became part of the real estate market collapse.

Hamilton said evidence and testimony in the trial proved Kerley was a direct participant, instructing his staff and others in how to concoct the fraudulent documents and proceed with the transactions. "Not only did he allow the transactions to take place, he directed the manner in which they would occur," the federal prosecutor said.

Without him, he said, the others couldn't have completed the scheme. So, while the amount stolen is in the millions and Kerley collected only a fraction of that amount, he was one of the key participants making it work.

While the judge didn't find that Kerley played a minor role, he did approve a motion for downward variance, which could help reduce Kerley's potential sentence. The state has suspended his license to practice law.