By Gene Johnson
The Associated Press
TACOMA — Prosecutors laid out their case against the indicted Washington state auditor in the greatest detail yet Tuesday, as an FBI agent described how financial records and statements from his former workers belied his explanations of why he was entitled to keep millions of dollars from old real estate transactions.
The testimony came during a hearing in which Auditor Troy Kelley is seeking to have the government return $908,000 it seized in September.
Prosecutors say the money had been stolen from clients of Kelley’s former real-estate services business and that he has no right to it.
However, Kelley’s attorney Angelo Calfo told U.S. District Judge Ronald Leighton that the way Kelley moved the money among various accounts was “money transferring,” not money laundering.
“The money wasn’t stolen from anybody,” Calfo said.
Kelley, a 51-year-old Democrat from Tacoma, 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.
Previously, he ran a company called Post Closing Department, which worked with escrow and mortgage title companies to track real estate transactions.
Investigators say Kelley kept fees the company was supposed to refund to customers — an amount that totaled at least $3 million from 2006 to 2008 — and paid himself $245,000 a year from the ill-gotten proceeds.
Indicted last spring
Just before he was indicted last spring on charges including possession of stolen money and filing false income tax returns, Kelley wrote a $447,000 check to the U.S. Treasury Department, noting in the subject line that it would cover future tax debts, and transferred more than $908,000 to a law firm that represented him at the time.
Federal prosecutors seized the money being held by the firm in September.
Calfo sought its return, arguing that the government did not need the money as evidence and had not demonstrated that it had probable cause to seize it.
In an opening statement Tuesday, Assistant U.S. Attorney Richard Cohen argued that the money was stolen and directly traceable to money laundering.
FBI Special Agent Michael Brown then took the stand, explaining in detail Post Closing Department’s business model and relationship with the two title and escrow companies with which it worked.
Referencing emails from Kelley and his employees, Brown described how Post Closing had repeatedly insisted to the other companies, Fidelity National Title and Old Republic Title, that it only kept $15 to $20 of each $100 to $150 fee collected from borrowers to track the transactions.
In reality, of more than 27,000 transactions, it provided refunds in just 89 instances, Brown testified.
Some of Kelley’s former workers, including Jason Jerue, whom he later hired at the auditor’s office, told investigators that Kelley had drafted the emails they sent to the title companies, Brown said.
Old Republic Title sued Kelley in 2009. He eventually paid more than $1 million to settle the case.
Four of the charges against Kelley allege he lied in a deposition in that case to avoid blame. Kelley’s attorney described the matter as a contract dispute.
