A federal grand jury indicted state Auditor Troy Kelley Thursday on charges of fraud, lying to federal investigators, filing false tax returns and “corrupt interference with Internal Revenue laws.”
The 10-count indictment, handed down by a grand jury in Seattle, calls for Kelley to forfeit more than $1 million he allegedly collected between June 2008 and January 2012 from fraud schemes involving his work for title companies.
Kelley described his actions as “squarely in line with industry practices.” He vowed to fight the charges and said he would not resign but will take a temporary leave of absence beginning May 1 and resume work “after I put these legal matters to rest.”
“I did not break the law,” Kelley said at an afternoon news conference. “I never ever thought I was breaking the law and I still do not.”
Within minutes of the indictment’s announcement, fellow Democrat Gov. Jay Inslee called for Kelley to step down immediately from the office he won in 2012.
“The indictment today makes it clear to me that Troy Kelley cannot continue as auditor,” Inslee said in a written statement. “An appointee can restore confidence in the office and assure the public the Office of State Auditor can operate at the high standards required of the post.”
State Treasurer Jim McIntyre, another Democrat, echoed Inslee’s call, saying Kelley “cannot continue in his role as auditor and should resign immediately.”
House Democratic Leader Pat Sullivan and Senate Democratic Leader Sharon Nelson called for Kelley to step down.
“If he doesn’t, we’ll have further conversations,” said Sullivan, of Covington.
One possibility would be an impeachment, which would start in the House. Sullivan said staff attorneys are looking into that possibility, but no decision has been made.
“My understanding is that has never happened in the state of Washington,” he said.
A state elected official can only be impeached for high crimes or misdemeanors – standards similar to those in the U.S. Constitution for federal officials – or for malfeasance. A majority of the House would have to vote to impeach, and two-thirds of the Senate would be needed to remove the state official from office.
House Republican Leader Dan Kristiansen was critical of Kelley’s plan to take what could be an extended leave of absence, describing it as “not what I would call a good-faith decision.” But he added Kelley still is presumed innocent.
The indictment alleges a scheme that developed when Kelley was operating a “reconveyance-tracking” service to title insurance companies, promising to administer escrow money for real estate purchases and refund the unused portions of the escrow to borrowers. Kelley and his company were entrusted with millions of dollars in reconveyance fees, the indictment charges, but they didn’t return all of the money to borrowers.
Instead he “fraudulently retained, stole and converted” $1,463,171 that should have been refunded to borrowers, the 41-page court document alleges.
In 2008, borrowers sued the two title companies seeking the return of reconveyance fees. The indictment alleges that Kelley then tried to conceal the money he had retained by moving it rapidly between different bank accounts until it eventually wound up in a shell company he owned. One of the title companies, Old Republic, sued Kelley in 2009 for the return of the fees. The indictment handed down Thursday alleges in five separate counts that he lied in sworn depositions for the lawsuit.
Kelley also “engaged in a long-running scheme to avoid and reduce his taxes on the unlawfully retained reconveyance fees,” the indictment charges. He under-reported income in 2006 and 2008; in 2011 and 2012, he sought to reduce the income he was reporting from the shell company by fraudulently claiming campaign expenditures that were not legitimate business deductions, the indictment says.
In an earlier prepared statement, Kelley said the federal government has “probed and prodded” his private business dealings over some 10 years and used the grand jury process to question every aspect of his professional life “until they could weave together an ill-conceived narrative from which to base the charges.”
They have an indictment, but are far from proving wrongdoing, he said: “I am very confident that I will be able to prove my innocence.”
In 2012, Kelley was elected state auditor – overseeing other government agencies and offices to determine whether they are following all federal and state laws and proper accounting practices.
The indictment said that when IRS agents interviewed him in April 2013, which would be four months after he took office, he lied about his income for 2011 and 2012.
Auditor’s office spokesman Thomas Shapley said the state office had no comment on the indictment.
“This has to do with previous activities, before he was elected,” Shapley said.
Doug Cochrane, Kelley’s chief of staff, was in the office, and “we’re just going to keep on doing our work,” Shapley said.
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