Troy Kelley declares innocence, slips away

Crosscut archive image.

A move to impeach indicted State Auditor Troy Kelley is underway in Olympia, but legislative leaders say lawmakers have more pressing problems to tackle.

Consulting a paper in his hand, embattled state Auditor Troy Kelley on Thursday declared his innocence of federal charges at a press conference in a Tacoma hotel banquet room.

Then one of his attorneys, Mark Bartlett of Seattle, took the podium to accuse the feds of overkill in filing 10 fraud-related counts against the statewide-elected official, who is also a U.S. Army National Guard lieutenant colonel.

As Bartlett began speaking, Kelley quickly walked out a door, to disappear without answering a single press question.

"We do not want him speaking to anyone," said Bartlett, a former senior federal prosecutor who switched to the private sector in 2010. "That was on the advice of counsel," said co-counsel Robert McCallum of Seattle, another former federal prosecutor who is now a tax attorney and Seattle University adjunct law professor.

Earlier in the afternoon, Kelley pleaded innocent in U.S. District Court in Tacoma to 10 counts of tax fraud, lying under oath in legal depositions, and lying to the U.S. Internal Revenue Service. A federal grand jury delivered the indictments late Wednesday, the April 15 deadline for filing federal income taxes. The indictments were announced Thursday morning.

Kelley, 50, was released without bail with his travel being restricted to Washington. U.S. Magistrate Judge J. Richard Creatura gave Kelley permission to go to South Korea for a two-week U.S. Army tour starting April 26. Kelley is in the judge advocate general's branch. But the National Guard told The News Tribune of Tacoma on Thursday that his trip has been called off because of the indictment.

Most of the charges address tax evasion and lying under oath over the past decade, with the bulk relating to a civil lawsuit that Kelley and the plaintiffs settled out of court in 2011. But one charge -- lying to the federal Internal Revenue Service -- allegedly occurred in April 2013, three months after Kelley took over as state auditor. Kelley was also a state representative from Tacoma from 2006 to 2012.

This is apparently the first federal indictment ever filed against a statewide elected official in Washington.

“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,” said Acting U.S. Attorney Annette L. Hayes in a press release. That amounted to some $1.4 million, the indictment alleges.

Assistant U.S. Attorney Arlen Storm said at Kelley's arraignment: "Troy Kelley tried to conceal funds in numerous bank accounts and move them about rapidly."

Kelley said, "I am very confident, very confident, that I'll be able to prove my innocence. ... I did not break the law. Let me be very clear. I never ever thought I was breaking the law."

Bartlett, one of his attorneys, said: "The Department of Justice wasted millions of dollars and thousands of hours on a case that amounts to civil litigation. ... It is an unjust use of government resource against one individual."

Meanwhile, a colleague of Kelley's still remains a mystery.

Jason Jerue used to be vice president of Post Closing Department, a title documents firm owned by Kelley, which is also at the heart of the federal investigation. The company is now closed. Hired by the Auditor’s Office in 2013, Jerue is a part-time technical writer telecommuting from an undisclosed city in California. His writing involves behind-the-scenes administrative work. Jerue’s wage is $22.68 an hour. He earned $15,286 in 2013 and $22,884 in 2014.

Jerue was not named in the indictment against Kelley. U.S. Attorney Seattle Office spokeswoman Emily Langlie declined to discuss Jerue's status, citing the department's policy of neither confirming nor denying investigations prior to any indictments. Earlier, federal investigators did subpoena Jerue's records at the Auditor's Office.

Meanwhile, Gov. Jay Inslee and several state legislative leaders called on Kelley to resign. "This indictment today makes it clear to me that Troy Kelley cannot continue as state auditor. He should resign immediately. An appointee can restore confidence in the office and assure the public that the Office of the State Auditor will operate at the high standards required of the post," Inslee said.

Inslee spokesman David Postman added: "These are things that the auditor is supposed to protect us from. That's what he is accused of."

Kelley said he will take a leave of absence starting May 1 to concentrate on his defense and to keep his presence from distracting the auditor's office in its work. Kelley said he plans to return to his job when he proves his innocence. Kelley's trial date is June 8. In addition, through his lawyers, the Seattle public relations firm of Firmani + Associates is helping him.

The Legislature could impeach Kelley, but legislative leaders were unsure Thursday of the procedures and timing of such an effort. It has been several decades, if not longer, since the Legislature has tried to impeach anyone.

Inslee said he does not have a replacement in mind for appointment to finish Kelley's term if Kelley steps down. When Kelley is away from Olympia, an executive council led by chief of staff Doug Cochran runs the agency. Auditor's Office spokesman Thomas Shapley said the agency's managers and staff function well in their assigned roles and will continue to do so regardless of who is in the top slot. While Kelley's troubles have been distracting, he said, Kelley's problems have not hampered the agency's everyday work. "People are clear that the agency is not one person, but 360 people who are professionals," Shapley said.

According to the indictment papers and the U.S. Attorney General's office press release, Kelley's alleged offenses are complex.

Kelly owned and managed Post Closing Department from 2003 to 2008, a firm that real-estate title companies used to track documents related to property sales and refinancings. The financial transaction fees were usually $100 to $150, of which Kelley's firm was entitled to $15 to $20 of those amounts. The federal indictment alleges Kelley kept most of the money involved in the $100 to $150 transactions, eventually winding up with about $2 million. The money allegedly was shuffled among many financial accounts, making tracking the cash difficult, and practically impossible in a 2010 civil lawsuit.

These alleged actions are the subject of a federal charge of possessing and concealing stolen property, which carries a maximum sentence of 10 years in prison and a maximum $250,000 fine.

Meanwhile, a former client of Kelley’s, Old Republic Title, a title-insurance firm, filed a 2010 lawsuit that alleged breach of contract and the misappropriation of $1.2 million against Kelley and Post Closing Department. Kelley denied the allegations. The case ended in 2011 with a settlement in which the records were sealed.

But that lawsuit is at the heart of the federal grand jury's charges of four counts of lying under oath in depositions in the case, with each carrying a maximum penalty of five years in prison and a fine of up to $250,000. The grand jury also brought a count of attempted obstruction of a civil lawsuit, which carries a maximum prison term of 20 years and a maximum fine of $250,000.

The seventh through ninth charges claim that Kelley hid income and cheated on his federal taxes. Top sentences on each are three years and $250,000. The 10th charge alleges he lied to the IRS in April 2013 when questioned about these matters. The lying-to-the-IRS charge carries a maximum penalty of three years in prison and a fine of up to $250,000.

In this type of case, prosecutors rarely seek consecutive sentences.

Bartlett and McCallum said they learned the indictment's details for the first time on Thursday. They said the matter should be handled in a civil court rather than as a criminal case. "It's not our intent to settle the case unless there is a dismissal of the indictment," McCallum said.

At the Tacoma press conference, Northwest Public Radio reporter Austin Jenkins asked the attorneys why Kelley ran for state auditor when he was aware the federal government could be looking into his tax situation.

Bartlett replied: "He clearly thought he didn't do anything wrong."

Jenkins followed up: "Was it hubris?"

No reply from the attorneys Kelley left to answer questions.


Please support independent local news for all.

We rely on donations from readers like you to sustain Crosscut's in-depth reporting on issues critical to the PNW.


About the Authors & Contributors

John Stang

John Stang

John Stang is a freelance writer who often covers state government and the environment. He can be reached on email at and on Twitter at @johnstang_8