Kelley Defense Hammers IRS Agent In Attempt To Cast Doubt
This story has been updated.
The outcome of the real estate services fraud case against Washington State Auditor Troy Kelley could hinge on the testimony of Jason JeRue who served as operations manager for Kelley’s former company, the Post Closing Department.
Given that, would the lead IRS agent in the federal investigation against Kelley trust his own daughter with JeRue?
That was the essence of a question Kelley defense attorney Angelo Calfo put to IRS Special Agent Aaron Hopper near the end of an hours long cross-examination in federal court in Tacoma.
“Is this somebody you would want your daughter to go out with,” Calfo asked.
“I’m not going to talk about my daughter Mr. Calfo,” Hopper responded tersely.
Calfo quickly changed tack.
“Is [JeRue] somebody you trust,” Calfo followed.
“I think Mr. JeRue has been truthful with us in this investigation,” Hopper said.
“Is he someone you would trust,” Calfo pressed.
“Yes,” Hopper answered.
Earlier in Kelley’s trial, JeRue testified that Kelley ordered him to falsify spreadsheets to make it look like Post Closing wasn’t sitting on large sums of homeowner fees.
The heart of the federal government’s case against Kelley is that he illegally pocketed more than $3.6 million in real estate closing fees that should have been refunded to homeowners. Approximately $1.4 million of that sum is at issue in the trial.
During the pre-recession height of the housing bubble, Kelley’s company contracted with title and escrow companies to make sure lenders cleared their interest in properties after loans were paid off.
Undermining a key witness
If JeRue, an elusive figure and seemingly reluctant witness, is the equivalent of the prosecution’s star witness, then the defense has a super-sized interest in undermining his credibility with the jury. That effort began with the defense’s cross-examination of JeRue on March 31 and continued Monday with the cross-examination of IRS Agent Hopper.
Kelley’s lawyer, Angelo Calfo, drew Hopper’s attention to the only surviving spreadsheet that JeRue allegedly doctored. JeRue had testified that, at Kelley’s direction, he “zeroed out” the spreadsheet to make it look like Post Closing had written checks to pay for third party fees when in fact those payments had not been made.
Federal investigators obtained the spreadsheet from an attorney for Old Republic Title, one of Kelley’s former clients who previously sued Kelley and ultimately settled with him for more than $1 million.
But the feds have been unable to prove that Kelley actually sent the spreadsheet to Old Republic. Also, Calfo noted, the spreadsheet only exists in “native format” which means it could be “manipulated.”
Calfo’s aim was to call into question the authenticity of the spreadsheet.
“What did you do to make sure this document wasn’t forged,” Calfo asked Hopper.
“I did not do an investigation to see if Old Republic forged this document,” Hopper replied. He added that he “had no reason to challenge” its veracity,.
Sowing seeds of doubt
It’s courtroom moments like this that exemplify the defense’s approach as Kelley’s trial enters its fifth week and the prosecution continues to mount its case. At each step of the way, the defense has sought to sow seeds of doubt with the jury.
In his cross-examination of Hopper, Calfo also revisited the March 2015 search of Kelley’s Tacoma home by IRS agents. That search turned up documents that seemed to “neatly corroborate” Kelley’s explanation that he was incrementally earning the homeowner fees and paying taxes on the money over time.
At the time, Hopper suspected that Kelley had back-dated the documents to create a cover story. But Calfo got the agent to acknowledge the IRS was unable to prove that theory even after it got a second search warrant to examine Kelley’s computers.
“No, we could not tell if it was back-dated or not,” Hopper testified about a particular document seized from Kelley’s home.
In additional to possession of stolen funds, Kelley is charged with money laundering and filing false tax returns.
With Hopper still on the stand, Calfo sought to puncture those charges. He highlighted an email from an IRS civil tax division chief who seemed to question prosecuting Kelley for tax-related matters.
“I wonder if tax charges could or should be dropped,” the official wrote after concluding that Kelley might not have any outstanding civil tax liability. Prosecutors later countered that the IRS official’s analysis came several months after Kelley found out he was going to be indicted and wrote the Department of Treasury a $447,421 check for future taxes owed.
‘How the heck…’
As for the money laundering charges, Calfo noted that money laundering is a financial transaction designed to conceal funds. He put up a chart that showed Kelley moving $245,000 from one bank account to another in February 2015, a transaction that forms the basis for one of the money laundering charges against Kelley. Calfo noted that both bank accounts were in the name of Kelley’s Nevada-based holding company, Blackstone International, and that Kelley did nothing to hide his ownership of Blackstone.
“How the heck could this be a transaction designed to conceal anything from anybody,” Calfo asked Hopper.
“He’s concealing from the IRS in that he’s making it look like an active business,” Hopper replied. Asked if Kelley was trying to conceal the funds from anyone else, Hopper paused and then answered, “I’m not sure.”
On redirect, Assistant U.S. Attorney Katheryn Frierson returned to the question of the $245,000 transfer. Calfo had suggested that the IRS had all the information it needed to know the source of those funds. But Hopper refuted that under questioning from Prosecutor Frierson.
“There was no way to know that money was really money generated through [Kelley’s former business] from 2006 through 2008,” Hopper testified.
Prosecutors also called an IRS agent, Paul Shipley, who testified that while Kelley ultimately reported the $3.6 million on his business tax returns, he failed to disclose the money on his earlier tax returns while operating the Post Closing Department in Washington.
“It was required to be reported in those years,” Shipley testified.
Kelley’s defense team plans to call its own expert to testify that Kelley’s tax reporting complied with IRS rules.