Washington State Auditor Troy Kelley walks out of the Federal Courthouse in downtown Tacoma on Monday. A federal jury Tuesday failed to reach a verdict on key charges in his fraud trial, and they acquitted Kelley of lying to the IRS on the single count where they could agree.

Washington State Auditor Troy Kelley walks out of the Federal Courthouse in downtown Tacoma on Monday. A federal jury Tuesday failed to reach a verdict on key charges in his fraud trial, and they acquitted Kelley of lying to the IRS on the single count where they could agree.

Jury deadlocks on key charges against state auditor Troy Kelley

TACOMA — The first Washington state official indicted in 35 years escaped conviction at his five-week federal fraud trial, but that doesn’t mean others in state government are any happier that he remains in office.

“Unfortunately, the people of Washington state do not yet have much-needed closure to Troy Kelley’s ongoing legal battles,” Gov. Jay Inslee said in a statement after jurors announced Tuesday they could not reach a decision on the key charges against Kelley. “Regardless of the outcome in court today, serious questions remain about Troy Kelley’s ability to successfully fulfill his role as state auditor.”

Kelley, a Democrat elected in 2012, is the state official charged with rooting out waste and fraud in government operations. He took a seven-month leave before returning to work in December, but has otherwise spent the past year rebuffing calls for his resignation.

He vowed to clear his name, and his lawyers said the trial’s result was a big step in that direction.

Prosecutors accused Kelley of pocketing $3 million in fees that they said he should have refunded to homeowners when he ran a real-estate services business during the height of last decade’s real-estate boom.

After deliberating for 3½ days, the jury failed to reach a decision on 14 counts, including whether Kelley possessed stolen money, laundered money, lied under oath in civil litigation or filed false income tax returns. And on the one count where they did reach a unanimous decision, they acquitted him of lying to the IRS.

Kelley hugged and kissed his quietly weeping wife after U.S. District Judge Ronald Leighton announced the results.

“This is a case that should never have been brought,” said one of Kelley’s attorneys, Angelo Calfo. “The jury’s inability to come to a verdict … shows to us Troy is on the right path to vindication.”

Kelley’s attorneys insisted he was entitled to keep the money, and foreman Mike Lowey said the jury was never close to agreement on that key point. The government had to prove that Kelley knew the money was stolen to convict him of possessing and concealing stolen property.

Calfo said he hoped prosecutors would not seek a retrial. Seattle U.S. Attorney Annette Hayes promised a thorough review of the deadlocked counts before deciding.

Kelley did not comment after the verdict.

Sen. Majority Leader Mark Schoesler, R-Ritzville, called on Kelley to resign, saying the auditor’s office had been “sullied” by the trial.

“What I have said, and still believe, is that public servants — especially one tasked with rooting out fraud and corruption in state government — should hold themselves to a higher standard than merely ‘not guilty,”’ said Rep. Drew Stokesbary, an Auburn Republican who co-sponsored an impeachment resolution the Legislature never acted on.

The charges against Kelley stemmed from his operation of a business called Post Closing Department, which tracked escrow paperwork for title companies.

Prosecutors said that to obtain business from the title companies — and get access to vast sums of money from homeowners — Kelley promised that Post Closing Department would collect $100 to $150 for each transaction it tracked; keep $15 or $20 for itself; use some of the money to pay county recording and other fees if necessary; and refund the customer any remaining money.

In tens of thousands of cases, the additional fees were not needed, but Kelley retained the money anyway. He refunded the balance only in a vanishingly few instances when title companies began asking uncomfortable questions or when homeowners were savvy enough to demand it, prosecutors said.

Assistant U.S. Attorneys Katheryn Kim Frierson and Andrew Friedman told jurors the case wasn’t as complicated as it sounds. They said Kelley lied to get the money then kept it, and his actions included moving money among various accounts to hide the proceeds, trying to pay off a homeowner who filed a lawsuit over the retained fees, and lying in civil litigation as well as on his taxes.

The trial featured testimony from a former employee, Jason Jerue, who told jurors that Kelley ordered him to falsify documents to hide that he wasn’t paying the refunds.

Kelley’s attorneys insisted that the homeowners were never promised refunds, and therefore no one was harmed by Kelley’s actions — even if they might have been unethical business practices.

Calfo sought to dismantle the government’s case point-by-point in his closing argument, saying that because of Kelley’s high political profile, investigators set out from the beginning to win a conviction — not to find the truth — and as a result ignored evidence of his client’s innocence. The defense also noted that when Kelley paid $1.1 million to a title company to settle claims that he wasn’t paying the refunds, the title company only wound up refunding $171,000 to homeowners, pocketing some and spending the rest on legal fees.

The case is “based on a fundamental premise, a fundamental misconception, and that is that Troy Kelley was dealing with other people’s money,” Calfo said. “He wasn’t.”

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Local News

A firefighter stands in silence before a panel bearing the names of L. John Regelbrugge and Kris Regelbrugge during the ten-year remembrance of the Oso landslide on Friday, March 22, 2024, at the Oso Landslide Memorial in Oso, Washington. (Ryan Berry / The Herald)
‘Flood of emotions’ as Oso Landslide Memorial opens on 10th anniversary

Friends, family and first responders held a moment of silence at 10:37 a.m. at the new 2-acre memorial off Highway 530.

Julie Petersen poses for a photo with images of her sister Christina Jefferds and Jefferds’ grand daughter Sanoah Violet Huestis next to a memorial for Sanoah at her home on March 20, 2024 in Arlington, Washington. Peterson wears her sister’s favorite color and one of her bangles. (Annie Barker / The Herald)
‘It just all came down’: An oral history of the Oso mudslide

Ten years later, The Daily Herald spoke with dozens of people — first responders, family, survivors — touched by the deadliest slide in U.S. history.

Victims of the Oso mudslide on March 22, 2014. (Courtesy photos)
Remembering the 43 lives lost in the Oso mudslide

The slide wiped out a neighborhood along Highway 530 in 2014. “Even though you feel like you’re alone in your grief, you’re really not.”

Director Lucia Schmit, right, and Deputy Director Dara Salmon inside the Snohomish County Department of Emergency Management on Friday, March 8, 2024, in Everett, Washington. (Ryan Berry / The Herald)
How Oso slide changed local emergency response ‘on virtually every level’

“In a decade, we have just really, really advanced,” through hard-earned lessons applied to the pandemic, floods and opioids.

Ron and Gail Thompson at their home on Monday, March 4, 2024 in Oso, Washington. (Olivia Vanni / The Herald)
In shadow of scarred Oso hillside, mudslide’s wounds still feel fresh

Locals reflected on living with grief and finding meaning in the wake of a catastrophe “nothing like you can ever imagine” in 2014.

Everett mall renderings from Brixton Capital. (Photo provided by the City of Everett)
Topgolf at the Everett Mall? Mayor’s hint still unconfirmed

After Cassie Franklin’s annual address, rumors circled about what “top” entertainment tenant could be landing at Everett Mall.

Everett
Everett man sentenced to 3 years of probation for mutilating animals

In 2022, neighbors reported Blayne Perez, 35, was shooting and torturing wildlife in north Everett.

The Washington State University Snohomish County Extension building at McCollum Park is located in an area Snohomish County is considering for the location of the Farm and Food Center on Thursday, March 28, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
Year-round indoor farmers market inches closer to reality near Mill Creek

The Snohomish County Farm and Food Center received $5 million in federal funding. The county hopes to begin building in 2026.

Dorothy Crossman rides up on her bike to turn in her ballot  on Tuesday, Aug. 1, 2023 in Everett, Washington. (Olivia Vanni / The Herald)
Everett leaders plan to ask voters for property tax increase

City officials will spend weeks hammering out details of a ballot measure, as Everett faces a $12.6 million deficit.

Starbucks employee Zach Gabelein outside of the Mill Creek location where he works on Friday, Feb. 23, 2024 in Mill Creek, Washington. (Olivia Vanni / The Herald)
Mill Creek Starbucks votes 21-1 to form union

“We obviously are kind of on the high of that win,” store bargaining delegate Zach Gabelein said.

Lynnwood police respond to a collision on highway 99 at 176 street SW. (Photo provided by Lynnwood Police)
Police: Teen in stolen car flees cops, causes crash in Lynnwood

The crash blocked traffic for over an hour at 176th Street SW. The boy, 16, was arrested on felony warrants.

The view of Mountain Loop Mine out the window of a second floor classroom at Fairmount Elementary on Wednesday, Jan. 10, 2024 in Everett, Washington. (Olivia Vanni / The Herald)
County: Everett mining yard violated order to halt work next to school

At least 10 reports accused OMA Construction of violating a stop-work order next to Fairmount Elementary. A judge will hear the case.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.