TACOMA, Wash. — An FBI agent testifying for a second day in the case of indicted Washington State Auditor Troy Kelley said millions of dollars in real-estate fees collected by his former company were not his to keep.
Under questioning from a federal prosecutor, Special Agent Michael Brown on Wednesday hit back against suggestions from Kelley’s lawyer that he wasn’t obligated to return the money to homeowners. Kelley made repeated promises to the title companies he worked with that he would refund unused portions of the fees to their customers, but did no such thing — and that’s fraud, Brown said.
And further, he said, he could think of no legitimate reason for Kelley to have later moved the money among various accounts. Instead, Brown suggested, it was done simply to make the money harder for former clients that were suing him to discover.
The testimony came during a hearing at which Kelley is asking a federal judge to return $908,000 that prosecutors seized in September.
Kelley, a 51-year-old Democrat, is a former state representative who was elected in 2012 to be Washington’s auditor — the state official tasked with rooting out waste and fraud in government operations. He was indicted this year on money laundering, possession of stolen money and other charges related to his prior operation of a real-estate services firm called Post Closing Department.
Post Closing worked with title companies to track certain real-estate transactions, called reconveyances. It would collect fees of $100 to $150 to cover any money that might be required by county recorders’ offices or others, keep $15 or $20, and — according to prosecutors — was supposed to refund the rest to the homeowners. Instead, they say, Kelley kept the whole thing — an amount that totaled about $3 million from 2006 to 2008 — and started paying himself $245,000 a year from the ill-gotten proceeds.
When Brown took the stand Tuesday, Kelley’s attorney, Angelo Calfo, sought to undermine the government’s case by suggesting that the money wasn’t stolen because the homeowners were not actually entitled to refunds. Even the title companies had argued in other court cases that the customers did not have a right to recover the fees or at best their rights were unclear, Calfo said. He framed the matter as a contract dispute, not a criminal matter.
“Are you aware of any document in which a homebuyer was promised a refund of this fee?” the lawyer asked.
“I am not,” Brown replied.
But on Wednesday, Assistant U.S. Attorney Andrew Friedman stressed that when the transactions closed, borrowers were typically given verbal promises that they would receive unused portions of the fees. And, he noted, there was a key difference between the legal positions of the title companies and Post Closing: Unlike Kelley, the other companies had not promised to return the fees.
An element of the crime of fraud is knowingly participating in a scheme to obtain money under false pretenses, and that’s what Kelley did, Friedman suggested.
The actions also constituted theft, Brown said. While Calfo implied that the FBI didn’t even have a clear theory about who owned the money — the title companies or the homebuyers — Brown said Wednesday it didn’t matter, because it still wasn’t Kelley’s to keep.
“Is the government required to prove whose money it was?” Friedman asked him.
“No,” Brown replied.
One of Kelley’s former clients, Old Republic Title, sued him in 2009. He eventually paid more than $1 million to settle the case.
Kelley has been on leave for the last several months. Many lawmakers, Gov. Jay Inslee and others have called for his resignation.
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