A Crime Or A Big Misunderstanding? Troy Kelley Trial Will Decide
Nearly one year after Washington State Auditor Troy Kelley was indicted by a federal grand jury, his trial on charges of possession and concealment of stolen property, money laundering and filing false tax returns is set to begin Monday in Tacoma.
Kelley, a first-term Democrat, has pleaded not guilty to all charges and his attorney, Angelo Calfo, has assailed the case as an example of federal overreach.
"A major theory here is that the investigation of this case was biased," Calfo told Judge Ronald Leighton in a pretrial hearing on March 4. "This case started as a political attack and once the FBI got it, it became a high profile public corruption case."
Calfo was referring to the fact that federal investigators started looking into Kelley in 2012 after his Republican opponent for state auditor, James Watkins, publicized a civil lawsuit that Kelley had settled in 2011 for more than $1 million. That lawsuit, brought by Old Republic Title, accused Kelley of misappropriating nearly $3.8 million in homeowner fees related to his former real estate services business.
From 2002 to 2008 Kelley was in the reconveyance tracking business. His company, the Post Closing Department, was hired by title and escrow companies to make sure that after a property sale closed the previous lender cleared its interest in the property. This is known as a reconveyance. Kelley's clients would collect an upfront fee of $100 to $150 from homeowners at closing and then forward that money to the Post Closing Department.
The prosecution's case hinges on the theory that Kelley was entitled to keep a small $15 to $20 reconveyance tracking fee, but was supposed to refund the remaining money if it wasn't need to pay trustee or recording fees to ensure the reconveyance was completed. Prosecutors contend that in most cases the lenders processed the reconveyance and therefore the funds weren't required.
The case against Kelley alleges that initially he did routinely issue refunds, but that something changed in 2005.
"Instead, Kelley ... began authorizing the issuance of refund checks only to those borrowers who were savvy enough to know that they were entitled to refunds and demanded them," prosecutors wrote in a trial brief submitted to the court.
Series of wire transfers
When class-action lawsuits were filed against the title companies in 2008, the feds say Kelley sought to conceal at least $1.4 million in stolen funds by moving the money through a series of wire transfers and ultimately parking the money in a Vanguard account that was later linked to an offshore account in Belize.
Once the lawsuits were resolved, Kelley is accused of drawing down the money in $245,000 increments but failing to pay all the taxes owed on that money by "falsely and fraudulently" declaring as business expenses "tens of thousands of dollars of his family's living expenses."
What the prosecution portrays as an open-and-shut fraud case, the defense contends is a prosecution gone awry.
"This is a fraud case that does not have a victim," Kelley's lawyers wrote in their trial brief. They argue that homeowners "had no expectation of any refund and voluntarily paid a fee to Mr. Kelley."
As to the tax-related charges, the defense maintains they "lack all merit" and boil down to a disagreement over tax timing.
"Mr. Kelley will be shown to have acted in good faith, and believed he was complying with the law, in connection with his tax reporting," defense attorneys wrote in their brief.
Jury instructions could be key
Kelley's guilt or innocence could come down to the instructions the judge gives the jury. The prosecution says that in order to convict Kelley, it does not need to "prove who exactly owned the stolen funds," but rather only must prove that they were fraudulently retained by Kelley.
"To be blunt, the theory does not make sense," the defense counters in a brief. To win a conviction, the defense says the prosecution will have "to prove that Mr. Kelley took money 'from one having the attributes of an owner.'"
Kelley is not expected to take the stand in his own defense. Instead, his lawyers plan to call a subject matter expert to explain to jurors why escrow customers had no right to a refund and why the class action lawsuits against title companies were ultimately dismissed.
Witnesses, emails and voicemails
A key prosecution witness will be Jason Jerue, a former business associate of Kelley's. Court documents indicate the federal government have granted immunity to Jerue in return for his testimony. Jerue has been the subject of speculation ever since it was revealed that Kelley hired him to work for the state auditor's office part-time from California. Last year the feds subpoenaed records from the auditor's office pertaining to Jerue's employment.
Other prosecution witnesses may include former Post Closing Department employees and employees of the title and escrow companies that contracted with Kelley's company. Prosecutors plan to introduce emails and voicemails they say will show that Kelley repeatedly represented to his clients that his company only charged a small tracking fee.
The defense, in its court filings, has already outlined a scenario in which, at the end of the trial, the judge dismisses the possession of stolen property and money laundering charges for "lack of sufficient evidence" and then has to declare a mistrial on the tax-related charges.
Because of the high profile nature of this case, a large pool of 75 to 100 potential jurors has been selected. Twelve will be selected along with two alternates. The trial could last as long as six weeks; however, the defense has predicted it will be over in two and a half.