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Jury deadlocks on 14 counts against auditor Kelley

Verdict on the single charge that jurors decided is ‘not guilty’

By GENE JOHNSON, Associated Press
Published: April 26, 2016, 8:21pm
3 Photos
Washington State Auditor Troy Kelley, in the background at far right, rushes to an exit staircase as his attorney Angelo Calfo, center, talks to reporters after the conclusion of Kelley&#039;s fraud trial Tuesday in Tacoma. (TED S.
Washington State Auditor Troy Kelley, in the background at far right, rushes to an exit staircase as his attorney Angelo Calfo, center, talks to reporters after the conclusion of Kelley's fraud trial Tuesday in Tacoma. (TED S. WARREN/Associated Press) Photo Gallery

TACOMA — The first Washington state official indicted in 35 years won at least partial vindication on Tuesday, as jurors in his federal fraud trial failed to reach a verdict on the key charges against him — and cleared him of lying to the IRS on the one count where they could agree.

State Auditor Troy Kelley hugged and kissed his quietly weeping wife after U.S. District Judge Ronald Leighton announced the results on the fourth day of deliberations after a trial that spanned more than five weeks.

“This is a case that should never have been brought,” said one of Kelley’s attorneys, Angelo Calfo. “The jury’s inability to come to a verdict … shows to us Troy is on the right path to vindication.”

Prosecutors accused Kelley of pocketing $3 million in fees that they said he should have refunded to homeowners when he ran a real-estate services business at the height of last decade’s real-estate boom, before he was elected auditor in 2012.

The jury failed to decide on 14 counts, including whether Kelley possessed stolen money, laundered money, lied under oath in civil litigation or filed false income tax returns.

Kelley’s attorneys insisted he was entitled to keep the money, and foreman Mike Lowey said the jury was never close to agreement on that key point. The government had to prove Kelley knew the money was stolen to convict him of possessing and concealing stolen property.

Calfo said he hoped prosecutors would not seek a retrial. Seattle U.S. Attorney Annette Hayes promised a thorough review of the deadlocked counts before her office decides.

Kelley, a Democrat from Tacoma, is tasked in his position with rooting out waste and fraud in government operations. He took a seven-month leave following the indictment but returned to work in December and has refused to resign, despite calls from Gov. Jay Inslee and others. His lawyers said he does not plan to seek reelection.

“Unfortunately, the people of Washington state do not yet have much-needed closure to Troy Kelley’s ongoing legal battles,” the governor said. “Regardless of the outcome in court today, serious questions remain about Troy Kelley’s ability to successfully fulfill his role as state auditor.”

Kelley did not comment after the verdict.

Rep. Drew Stokesbary, R-Auburn, who co-sponsored an impeachment resolution that the Legislature never acted on, said he was “glad the justice system was given a chance to work.”

“But my position has never been that Troy Kelley was guilty (or innocent),” he said. “What I have said, and still believe, is that public servants — especially one tasked with rooting out fraud and corruption in state government — should hold themselves to a higher standard than merely ‘not guilty.’ ”

The charges against Kelley stemmed from his operation of a business called Post Closing Department, which tracked escrow paperwork for title companies.

Prosecutors said that to obtain business from the title companies — and get access to vast sums of money from homeowners — Kelley promised that Post Closing Department would collect $100 to $150 for each transaction it tracked; keep $15 or $20 for itself; use some of the money to pay county recording and other fees if necessary; and refund to the customer any remaining money.

In tens of thousands of cases, the additional fees were not needed, but Kelley retained the money anyway. He refunded the balance only in a relatively few instances when title companies began asking uncomfortable questions or when homeowners were savvy enough to demand it, prosecutors said.

Assistant U.S. Attorneys Katheryn Kim Frierson and Andrew Friedman told jurors the case wasn’t as complicated as it sounds. They said Kelley lied to get the money, then kept it, and his actions included moving money among various accounts to hide the proceeds, trying to pay off a homeowner who sued over the retained fees, and lying in civil litigation as well as on his taxes.

The trial featured testimony from a former employee, Jason Jerue, who told jurors that Kelley ordered him to falsify documents to hide that he wasn’t paying the refunds.

Kelley’s attorneys insisted that the homeowners were never promised refunds, and that therefore no one was harmed — even if Kelley’s actions might have been unethical business practices.

Calfo sought to dismantle the government’s case point-by-point in his closing argument, saying that because of Kelley’s high political profile, investigators set out from the beginning to win a conviction — not to find the truth — and as a result ignored evidence of his client’s innocence.

The case is “based on a fundamental premise, a fundamental misconception, and that is that Troy Kelley was dealing with other people’s money,” Calfo said. “He wasn’t.”

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