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Dispatches from public radio's correspondent at the Washington Legislature. Austin Jenkins is the Olympia correspondent for the Northwest News Network. You can also see Austin on television as host of TVW's (the C–SPAN of Washington State) weekly public affairs program "Inside Olympia."

Washington Auditor Proclaims Innocence, Won't Resign After Federal Indictment

Austin Jenkins
Northwest News Network
Washington State Auditor Troy Kelley speaks to reporters after pleading not guilty to federal tax evasion and obstruction charges.

Washington State Auditor Troy Kelley is defending himself in the face of a 10-count federal indictment and shows no sign of resigning. 

Kelley, a first-term Democrat, pleaded not guilty Thursday to charges of filing false tax returns, lying to federal agents and stealing from title company customers. The case stems from his prior work in the real estate industry.

Six hours after news of the indictment broke Kelley faced the cameras in a hotel conference room across the street from the federal courthouse in Tacoma.

Kelley said the charges against him were without "merit." And he accused the feds of engaging in a three-year long effort to build a case against him.

"In the end they’ve been able to obtain that indictment," Kelley said. "But they are a long way from proving any wrongdoing."

'The government is wrong'

Speaking from prepared remarks, Kelley proclaimed his innocence.

"I did not break the law and I want to be extremely clear here," Kelley said. "I never, ever thought I was breaking the law and I still do not to this day."

Earlier in the day, Kelley had turned himself in to federal marshals -- a process that includes being fingerprinted and photographed. He then appeared in a federal courtroom flanked by his attorneys. Asked if he understood the charges against him Kelley stood and told the judge, "yes, your honor." One of his two attorneys then entered not guilty pleas on Kelley’s behalf.

Both of Kelley’s attorneys are former federal prosecutors. His attorney Mark Bartlett told reporters the case is an "unprecedented prosecution" that involves matters he says were previously resolved in civil court.

"The government now wants you to believe that these same facts, which were litigated in civil cases and dismissed, should provide them a basis for criminal charges," Bartlett said. "The government is wrong on the facts and they’re wrong on the law."

Charges of theft, concealment, obstruction

The 41-page indictment focuses mostly on the years 2003 to 2008. That’s when Kelley was in the reconveyance tracking business. He was hired by title companies to make sure banks released their liens on properties that were sold. The feds say Kelley pocketed millions of dollars in fees that should have been returned to title company customers. The indictment also alleges Kelley sought to conceal the money and avoided paying more than $1 million in taxes.

Kelley maintains his business practices were above board and that he disclosed those funds to the IRS.

"I've been paying taxes on those funds long before the government’s interest in this case," Kelley told reporters.

Just last month, Kelley sent the IRS a check for nearly $450,000. He wrote that check 10 days after federal agents served a search warrant on his Tacoma home. Asked to explain his client’s actions, Kelley attorney Robert McCallum told reporters, "it was really a good faith payment."

Kelley indicated on the check it was a pre-payment for taxes owed over the next four years.

The indictment also reveals Kelley paid more than $1 million to settle a lawsuit with his former client Old Republic Title. There is no suggestion in the indictment that Kelley engaged in public corruption. However he is accused of lying in a sworn deposition in 2010 when he was a state lawmaker and again to IRS agents in 2013 when he was auditor.

Calls to resign

Whatever Kelley’s fate in the federal court system, his political party is ready for him to resign. Governor Jay Inslee was the first Democrat to publicly call for Kelley to give up his office.

"The auditor’s office, we know, is an extremely important office in maintaining the integrity of state government," Inslee said. "An appointee can fulfill the role of this. I think that needs to happen immediately and I hope that Mr. Kelley will take that position."

Kelley told reporters he will step aside, but not down.

"I will be taking a leave of absence at the end of the month from my duties as state auditor," Kelley said. "I take this action to allow my office to do the important work without distraction and to allow me to participate fully in my defense."

Kelley finished by saying he fully intends to return as state auditor once the charges against him are put to rest. With that he left out the back door of the conference room and let his attorneys field the questions.

Kelley’s trial is tentatively scheduled for June 8. The charges against him can bring decades in prison.

Kelley is a lieutenant colonel in the Washington Army National Guard. He received permission from the judge in his case to travel to South Korea later this month as part of his Guard duties. However, a spokeswoman for the Washington Military Department says Kelley’s trip has been postponed. Kelley’s secret security clearance has also been put on hold according to the spokeswoman.

With the exception of that overseas trip, the judge restricted Kelley’s travels to within the state of Washington. Kelley is married and has two children.

Since January 2004, Austin Jenkins has been the Olympia-based political reporter for the Northwest News Network. In that position, Austin covers Northwest politics and public policy, as well as the Washington State Legislature. You can also see Austin on television as host of TVW's (the C–SPAN of Washington State) Emmy-nominated public affairs program "Inside Olympia."