Federal prosecutors suffered a stunning setback in the theft and money-laundering prosecution of State Auditor Troy Kelley, with a jury acquitting him of the single charge they could agree on.
TACOMA — Federal prosecutors suffered a stunning setback Tuesday in the theft and money-laundering prosecution of State Auditor Troy Kelley, with a jury acquitting him of the single charge they could agree on.
After six weeks of trial and four days of deliberations, jurors could not agree on 14 other counts, including the key charges of theft, money laundering and tax evasion. Instead, the jury acquitted him of making a false statement.
The jury foreman later said the panel was hopelessly split on most of the criminal counts.
Kelley, 51, who has appeared drawn and tired as the trial progressed, seemed visibly relieved when the verdict was read. He did not immediately comment.
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Defense attorney Angelo Calfo hugged Kelley’s wife and several members of the defense team after the verdict was read.
Calfo said Kelley was happy with the acquittal on the false-statements charge. Interviews with jurors, he said, showed an “overwhelming majority” were leaning toward acquittal on the crucial count of possession of stolen property.
“The right thing for the government to do at this point would be to dismiss the remainder of the charges and let Mr. Kelley get on with his life,” said Calfo, himself a former white-collar prosecutor.
Kelley was “relieved” at the verdict, “but more importantly, he feels vindicated,” Calfo said.
It wasn’t immediately clear whether federal prosecutors would seek to retry Kelley. U.S. Attorney Annette L. Hayes said in a statement that her office would review the verdict before “making a decision about our next steps in this case.”
Kelley had faced up to 20 years in prison on charges from a federal grand jury alleging he stole upward of $3 million from homebuyers during the pre-recession real-estate boom by failing to make refunds to clients of his now-shuttered real-estate reconveyance company, Post Closing Department.
In an often-complex trial with more than 100 witnesses and thousands of pages of exhibits, the defense strategy was to hammer every inconsistency in the government’s case. And there were some large ones: Post Closing Department was not the only reconveyance firm that failed to refund unspent fees; indeed, it was a common practice in the industry and led to dozens of lawsuits, almost all of which were dismissed.
Jury foreman Mike Lowey of Roy, a mail carrier, said he voted to acquit on the theft-of-stolen-property charge — the key charge — but would have convicted Kelley on some of the tax-evasion counts. Other jurors had different ideas.
“It got pretty heated. There was a lot of back and forth. It was complicated,” he said. “For me, I just don’t think he (Kelley) thought the money was stolen. The contracts were vague.”
Kelley, a Democrat, is the first state official to face criminal indictment in nearly 40 years. He has said he would not seek re-election.
Inslee said Tuesday that regardless of the verdict, questions remain about Kelley’s ability to remain in office.
“Unfortunately, the people of Washington state do not yet have much-needed closure to Troy Kelley’s ongoing legal battles,” Inslee said in a statement.“Regardless of the outcome in court today, serious questions remain about Troy Kelley’s ability to successfully fulfill his role as state auditor.”
State Sen. Majority Leader Mark Schoesler, R-Ritzville, called on Kelley to resign.
“The jury has made its decision, but the public trust has been violated,” Schoesler said in a statement. “The elected office of state auditor has been sullied by Mr. Kelley’s trial. “
Kelley, who earns $120,459 a year, has continued to be paid during the trial, according to Adam Wilson, deputy communications director for the auditor’s office.
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, while operating Post Closing Department, Kelley failed to refund real-estate fees to homebuyers.
The investigation focused on the dealings of Post Closing Department between 2003 and 2008.
Prosecutors said the company collected between $120 and $140 from each of tens of thousands of escrow customers to perform services Kelley promised could be done for between $10 and $20. The remainder of the money, according to testimony at his trial, was intended to cover county and recording fees.
Any money left over was supposed to be refunded, but wasn’t, prosecutors said. Kelley, they alleged, amassed more than $3 million in unrefunded fees, at least $1.4 million of which was fraudulently retained.
“He engaged in a 10-year scheme to steal from others and keep it for himself,” Assistant U.S. Attorney Andrew Friedman said during the trial’s opening statements.
Kelley’s defense said the contracts Kelley had signed to provide services for two major escrow companies, Fidelity International and Old Republic Title, were ambiguous and that there were no real victims. His attorney, Calfo, said neither the title companies nor the homeowners were entitled to refunds.
Kelley’s defense maintained that the practices Kelley has been accused of were common among other reconveyance firms and even some of the title companies the government has said were victims of Kelley’s fraud.
The defense claimed the lawsuit filed by Old Republic Title for not refunding the fees to customers was, in fact, a contract dispute that had been turned into a criminal matter by overzealous federal agents who had a high-profile target in their sights.
Kelley settled the lawsuit for $1.1 million, which the government has implied was proof he knew what he was doing was wrong. But another Kelley attorney, Patty Eakes, said the settlement was a business decision.
More importantly, she said, Old Republic had said it would refund that money to a client, but ended up giving back only $171,000, and pocketed more than $400,000 for itself — the same sort of action Kelley has been condemned for by prosecutors.