The embattled auditor is named in a new indictment that adds charges and alleges he engaged in money-laundering while he was in office.

Share story

New federal charges filed Thursday against embattled state Auditor Troy Kelley allege that he laundered money and evaded the Internal Revenue Service (IRS) while he was in office.

A new 17-count indictment handed down by a federal grand jury and unsealed on Thursday adds eight new charges to a 10-count indictment issued earlier this summer. It includes allegations that Kelley laundered money — in the form of a $245,000 salary — that he paid himself from funds allegedly stolen from clients of his now-defunct real- estate reconveyance company, Post Closing Department.

Prosecutors dropped a charge alleging the 51-year-old Kelley lied in sworn testimony and depositions in a civil case filed against him by one of Post Closing Department’s former clients, Old Republic Title, in 2010.

That single charge carried a possible penalty of 20 years in prison, which was the most serious count in the initial indictment.

Each of five new money-laundering charges carry a maximum 20-year sentence.

Kelley’s new attorney, Angelo Calfo of Seattle, said the new charges amounted to “lipstick on a pig.”

Calfo, a former federal prosecutor and veteran trial attorney, appeared on Kelley’s behalf in federal court Thursday. He replaces Kelley’s former attorney, Mark Bartlett.

U.S. Attorney Annette Hayes said the new charges allege that Kelley laundered money as recently as February, while he was the sitting auditor. Kelley, a Democrat elected in 2012, has taken a leave of absence and has vowed to fight the charges and clear his name.

Gov. Jay Inslee, Attorney General Bob Ferguson and others have urged him to step down.

“The superseding indictment alleges that Mr. Kelley’s scheme continued even after his election to statewide office,” Hayes said in a news release.

The new indictment adds five counts of money-laundering stemming from Kelley allegedly using stolen funds between 2011 and this year. It adds three additional tax-evasion counts for 2011 through 2013, Hayes said.

Last April, a federal grand jury in Seattle returned a 10-count indictment against Kelley, accusing him of theft for keeping millions in fees paid by clients of Post Closing Department, mostly between 2002 and 2008.

When he was sued by Old Republic Title, Kelley was a Democratic legislator, and he settled the lawsuit for nearly $1.2 million. Prosecutors allege Kelley maintained control over nearly $2.5 million, much of it allegedly stolen, which he hid from the IRS.

In addition to the criminal charges, federal prosecutors are seeking forfeiture of more than $1.4 million in cash.

Prosecutors allege that Kelley and Post Closing Department engaged in a drawn-out scheme to placate the concerns of his business partners while keeping fees that should have been refunded to customers. Most of the alleged crimes occurred between 2002 and 2008, according to the charges.

Kelley has pleaded not guilty to the federal charges, and his trial is set for Jan. 19.

Kelley is also under investigation by Ferguson, who is looking into the hiring of Jason Jerue, a longtime Kelley friend and former vice-president at Post Closing Department, as a long-distant employee working as a technical writer for the auditor from his home in California. Jerue was paid $22,884 in 2014, according to state records.

Peter Lavellee, Ferguson’s communications director, said the investigation is ongoing and Ferguson would have no comment beyond that.

Kelley initially hired Bartlett, the former first assistant in the U.S. Attorneys Office in Seattle, as a defense attorney in hopes of heading off the indictment.

On Thursday, Bartlett withdrew as Kelley’s attorney.

The investigation became public after federal agents searched Kelley’s Tacoma home in March while he and his family were on vacation. That search led to another search in which agents seized additional computers and documents.