Inslee repeats call for state auditor to resign

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OLYMPIA — Washington Gov. Jay Inslee on Friday repeated his call for embattled state Auditor Troy Kelley to resign immediately following his indictment by a federal grand jury.

Inslee spokesman David Postman said a letter from the governor was emailed Thursday night and then hand-delivered to the auditor’s office Friday.

Kelley pleaded not guilty to 10 felony counts Thursday. The indictment charged him with filing false tax returns, attempting to obstruct a lawsuit and possessing more than $1 million in stolen property related to his former business. Trial was set for June 8.

Inslee wrote that the indictment “makes it clear that you can no longer serve the citizens of Washington as state auditor.”

“You have now been indicted for the very type of conduct that your office is tasked with regulating; in turn, you have lost the public’s trust,” Inslee wrote.

Inslee said Kelley’s plan to take a leave of absence would be insufficient because the criminal proceedings will cloud the image of the office along with its reputation and ability to properly function.

Inslee is among several state leaders who have called for Kelley’s resignation.

Kelley has said he’ll take a temporary leave of absence beginning May 1. He says he’s determined to fight back and keep his position.

A spokesman for Kelley said Friday he had not seen the letter and did not yet have a response from the auditor to share.

At a news conference Thursday, Kelley insisted he did not break the law.

“And I want to be extremely clear here: I never, ever thought I was breaking the law, and I still do not to this day,” he said.

The 41-page indictment alleged various misdeeds by Kelley in connection with mortgage title services companies that he previously ran. Federal prosecutors said he kept more than $1 million that should have been refunded to customers and that he unlawfully avoided paying taxes by claiming personal or campaign expenses were business-related.

“Mr. Kelley spun a web of lies in an effort to avoid paying his taxes and keep more than a million dollars that he knew did not belong to him, but instead should have been returned to thousands of homeowners across this state,” acting U.S. Attorney Annette L. Hayes said.

The most serious charge carries a possible sentence of up to 20 years in prison. A felony conviction would automatically force Kelley from office, and some lawmakers spoke about the possibility of impeaching him in light of the charges alone.

Rep. Drew Stokesbary, a Republican from Auburn, said he and some of his colleagues have discussed the possibility of impeachment with House attorneys.

“Every single person in the Capitol thinks he needs to resign, other than himself,” Stokesbary said. “He’s putting his own personal and financial interests above the interests of the people of this state.”

Speculation has been swirling around Kelley, a Democrat elected in 2012, since last month, when federal agents searched his home and subpoenaed the auditor’s office for records concerning a longtime business associate who subsequently went to work for Kelley at the state agency.

Days after the search, Kelley wrote a $447,000 check to the U.S. Treasury Department, noting in the subject line that it would cover future tax debts, the indictment said.

Kelley’s company, Post Closing Department, worked with escrow and mortgage title companies to track certain real estate transactions. According to the indictment, it was supposed to collect up to $150 in advance as a fee for each transaction; keep $15 to $20 for its services; pay any government fees required; and then refund whatever portion remained. Instead, Kelley kept the money, the indictment said — an amount that totaled at least $3 million from 2006 to 2008.

One of the escrow companies Kelley worked with, Old Republic Title, sued him in 2009. He eventually paid more than $1 million to settle the case.

According to the indictment, “Kelley gave false testimony during a deposition, lied in sworn declarations submitted to the court, and misled Old Republic as to the whereabouts of the unlawfully retained reconveyance fees through false and fraudulent answers to interrogatories.”

The government is also seeking an order that Kelley forfeit nearly $1.5 million.