TACOMA, Wash. (AP) — The first Washington state official indicted in 35 years won at least a 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 jury results on the fourth day of deliberations after a trial that spanned more than five weeks.
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 during the height of last decade's real-estate boom, before he was elected auditor in 2012.
The jury failed to reach a decision on whether Kelley possessed stolen money, laundered money, lied under oath in civil litigation or filed false income tax returns.
There was no immediate word about whether the government planned to re-try the case.
"My office will thoroughly review the counts that the jury deadlocked on before making a decision about our next steps in this case," Seattle U.S. Attorney Annette Hayes said.
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 will not seek reelection; Kelley did not immediately comment after the verdict.
Rep. Drew Stokesbary, a Republican from Auburn who co-sponsored an impeachment resolution that the Legislature never took action 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)," Stokesbary wrote in a direct message to The Associated Press. "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 during the height of the housing boom in 2006-08.
Assistant U.S. Attorney Katheryn Kim Frierson told jurors that Kelley's actions included moving money among various accounts to hide the proceeds, trying to pay off a homeowner who filed a lawsuit 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, a lawyer who has taught tax law courses, faced 15 counts, including money laundering and tax evasion. The charges date to 2005 when his company 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 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.
Kelley's attorneys insisted that the homeowners were never promised refunds, and therefore no one was harmed by Kelley's actions — even if they might have been unethical business practices.
One defense attorney, Angelo 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."
The most serious charge against Kelley was money laundering, which carries a maximum of up to 20 years in prison.