TACOMA — Washington State Auditor Troy Kelley, the elected official charged with rooting out government fraud and waste, pleaded not guilty Thursday after a federal grand jury indictment charged him with filing false tax returns, attempted obstruction of a civil lawsuit and possession of more than $1 million in stolen property related to his former business.
The 41-page indictment, unsealed earlier in the day, alleged various misdeeds by Kelley in connection with mortgage title services companies he previously ran. Federal prosecutors said he kept more than $1 million that should have been refunded to customers and that he unlawfully avoided paying taxes by claiming personal or campaign expenses were business-related.
“Mr. Kelley spun a web of lies in an effort to avoid paying his taxes and keep more than a million dollars that he knew did not belong to him, but instead should have been returned to thousands of homeowners across this state,” acting U.S. Attorney Annette L. Hayes said.
Kelley was flanked by his attorneys as he appeared Thursday afternoon for his arraignment at U.S. District Court here. A magistrate judge set trial for June 8.
Later, at a news conference nearby, Kelley and the attorneys expressed puzzlement about the indictment, which one lawyer said involves matters “already resolved through civil litigation.”
Kelley limited his remarks mostly to a prepared statement he had issued earlier in the day. “I did not break the law,” he added. “I never ever, ever thought I was breaking the law, and I still do not to this day.”
The most serious charge in the indictment carries up to 20 years in prison. A felony conviction would automatically force him from office, and some lawmakers spoke about the possibility of impeaching him in light of the charges alone.
In the written statement, Kelley said he was disappointed by the indictment and that he would take a temporary leave of absence beginning May 1, but that he was “determined to fight back.”
“For the past few years, I have been the subject of an intense investigation by the federal government about my private business practices going back more than 10 years,” he said. “In the end, they’ve been able to obtain an indictment, but they are a long way from proving any wrongdoing. Put more directly, I am very confident that I will be able to prove my innocence.”
Washington Gov. Jay Inslee called on Kelley to resign, as did Attorney General Bob Ferguson and state Sen. Mark Miloscia, a Federal Way Republican who ran against Kelley for auditor.
“This indictment today makes it clear to me that Troy Kelly cannot continue as state auditor,” Inslee said in a written statement. “An appointee can restore confidence in the office and assure the public that the Office of the State Auditor will operate at the high standards required of the post.”
Speculation has been swirling around Kelley, a Democrat elected in 2012, since last month, when federal agents searched his home and subpoenaed the auditor’s office for records concerning a longtime business associate who subsequently went to work for Kelley at the state agency.
Days after the search, Kelley wrote a $447,000 check to the U.S. Treasury Department, noting in the subject line that it would cover future tax debts, the indictment said.
Kelley’s company, Post Closing Department, worked with escrow and mortgage title companies to track certain real estate transactions. According to the indictment, it was supposed to collect up to $150 in advance as a fee for each transaction; keep $15 to $20 for its services; pay any government fees required; and then refund whatever portion remained. Instead, Kelley kept the money, the indictment said — an amount that totaled at least $3 million from 2006 to 2008.
“Contrary to his representations, Troy X. Kelley did not refund unused portions of reconveyance fees to borrowers, but instead fraudulently retained, stole, and converted them to his own use,” the indictment said.
One of the escrow companies Kelley worked with, Old Republic Title, sued him in 2009. He eventually paid more than $1 million to settle the case.
According to the indictment, “Kelley gave false testimony during a deposition, lied in sworn declarations submitted to the Court, and misled Old Republic as to the whereabouts of the unlawfully retained reconveyance fees through false and fraudulent answers to interrogatories.”
Attempted obstruction of a civil lawsuit carries a maximum sentence of up to 20 years. Possession and concealment of stolen property carries up to 10 years. Kelley is also charged with corrupt interference with internal revenue laws.
The government is also seeking an order that Kelley forfeit nearly $1.5 million.
Johnson reported from Seattle. Rachel La Corte contributed from Olympia.
Reaction to the federal indictment of Auditor Troy Kelley
OLYMPIA — Elected officials in Washington state called on Auditor Troy Kelley to step down following his indictment by a federal grand jury on charges of filing false tax returns, attempted obstruction of a civil lawsuit and possession of stolen property:
Gov. Jay Inslee:
“We have to have an auditor, and we have to have an auditor with the full confidence of the people. Those conditions do not exist right now…He’ll have the full presumption of innocence in the criminal system, but right now we have to have an auditor who can actually do the job.”
Attorney General Bob Ferguson:
“The many dedicated career public servants who staff the State Auditor’s Office should be able to perform their important work free of the cloud of uncertainty and distraction the Auditor’s situation now creates. The sooner that cloud is lifted, the better. That’s why I am calling upon Troy Kelley to resign as auditor immediately.”
Sen. Mark Miloscia, R-Federal, Way, who as a Democrat ran unsuccessfully against Kelley in the 2012 primary:
“Right now, for the good of the citizens of Washington state, he needs to step down and deal with these indictments … I’d been reluctant to call for his resignation in the past, but now it’s gone too far. He cannot be state auditor and run that agency, which depends on having the public’s and all the elected officials’ confidence.”
Senate Majority Leader Mark Schoesler, R-Ritzville:
“I called long ago for Troy Kelley to take a leave of absence. I’m out of patience, as I think most citizens would be, and I think he should do the honorable thing and step aside to restore trust in government.”
Treasurer Jim McIntire:
“I agree with Governor Inslee that Troy Kelley cannot continue in his role as auditor and should resign immediately. I have full confidence in the highly professional staff at the State Auditor’s Office who will continue to work to protect the state’s financial integrity.”
Sen. Sharon Nelson, D-Maury Island:
“The people of Washington deserve to have their full faith and confidence restored in the Office of the State Auditor. We believe this can and will be achieved by the immediate resignation of Auditor Kelley. Senate Democrats join the governor in calling on Kelley to step aside, and allow an appointee to renew the integrity of this important office.”