Troy Kelley returns to a federal courtroom in Tacoma this week to face a second trial on charges stemming from his real-estate business dealings. Last year, he fought federal prosecutors to a draw on 14 of 15 felony charges. This time around, Kelley faces 14 felony counts.
Former state auditor Troy Kelley returns Monday to federal court in Tacoma to again defend himself against charges that he stole as much as $3 million from homebuyers by failing to refund unused closing fees collected by his now-shuttered business.
Kelley, a Democrat elected in 2012 who served a single term — several months of it on leave and under pressure to resign — last year fought federal prosecutors to a draw on 14 of 15 felony charges, winning an acquittal on one charge alleging he lied to the Internal Revenue Service. This time around, Kelley faces 14 felony counts.
The maximum penalties haven’t changed: Kelley faces up to 20 years in prison if convicted.
“I’m surprised they’re going through with this,” Kelley’s attorney, Angelo Calfo, said last week of federal prosecutors. “But there was nothing we could give them, and the government always wants something. The stakes are very high for Mr. Kelley.”
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Last year’s trial was bitter and hard-fought, with conflicting testimony by expert witnesses, hundreds of exhibits and complex explanations of the real-estate escrow process. Kelley’s attorneys contended that he was being targeted by federal agents under pressure to build a case against him.
Gov. Jay Inslee and other state officials called for Kelley to step down. Kelley took seven months of leave amid his prosecution and did not seek re-election last year.
State Attorney General Bob Ferguson launched his own investigation after it was learned that Kelley had hired a former business partner for a long-distance, part-time state job. That investigation is ongoing, the Attorney General’s Office said.
During the first trial, Kelley’s defense ground away at every prosecution witness and inconsistency in the government’s case, returning time and again to a big one: that Kelley and his business, Post Closing Department, were not alone in the freewheeling, pre-recession real-estate market in not refunding unspent fees.
After testimony from more than 100 witnesses and tens of thousands of pages of exhibits, the jury deliberated for four days before announcing it was hopelessly deadlocked on all but one charge. He was acquitted of lying to an Internal Revenue Service agent about concealing income.
That was a year and a half ago. Since then, Kelley unsuccessfully asked the 9th Circuit Court of Appeals to have other IRS-related charges dismissed. He remains charged with 14 counts involving theft, money-laundering and tax evasion.
Kelley’s attorneys, Calfo and Patty Eakes, have unsuccessfully tried to persuade the government to dismiss the case, or negotiate a plea that won’t result in Kelley losing his license to practice law if convicted.
Kelley’s attorneys have said they expect the new trial will have far less publicity because he is no longer in office.
Since leaving the Auditor’s Office last year, Kelley has been working mostly as a judge advocate general in the Washington National Guard, where he holds the rank of lieutenant colonel.
The U.S. Attorney’s Office declined to discuss the prosecution. However, in motions and trial briefs filed with U.S. District Judge Ronald Leighton, prosecutors say they expect the government’s case will be shorter and more concise. The government said it expects to call about 35 witnesses, compared with 67 at the original trial.
Regardless, prosecutors said they expect it to extend into the first week of December. Much, they said, depends on the defense, which has added to its case at least nine of the witnesses the government trimmed from its list, according to court filings.
Prosecutors pointed out that the defense spent far more time cross-examining the government’s witnesses than prosecutors did with the defense witnesses.
The government’s case stems from business dealings Kelley was engaged in from roughly 2003 through 2008, before he was elected state auditor.
He had formed Post Closing Department and created a niche business whose sole job was to file and track reconveyance documents for real-estate escrow firms. Prosecutors allege that Kelley agreed to charge a fee of between $15 and $20 for each transaction.
The escrow companies, however, paid Post Closing Department as much as $140 for each job, with the extra money available to pay any other expenses, like county recording and other fees. Prosecutors allege the remaining money was supposed to be refunded to the homebuyer, but instead was pocketed by Kelley.
At one point, the government seized more than $900,000 from Kelley, although it was returned to him after trial.
Kelley came under investigation by the Internal Revenue Service and the FBI after his successful 2012 campaign for auditor when his opponent pointed to a 2009 lawsuit alleging that Post Closing Department failed to refund the real-estate fees to homebuyers. A grand jury in 2015 made him the first state official indicted in more than 40 years.
Kelley paid $1.1 million to settle that lawsuit, which had been filed by Old Republic Title Co.
During his first trial, Kelley’s defense hammered on the fact that Old Republic itself had promised to refund more than $570,000 to clients, but ended up keeping $400,000 of that money — the same sort of transaction for which Kelley has been condemned by the government.