TACOMA, Wash. (AP) — The first Washington state official indicted in 35 years escaped conviction at his five-week federal fraud trial, but that doesn't mean others in state government are any happier that he remains in office.
"Unfortunately, the people of Washington state do not yet have much-needed closure to Troy Kelley's ongoing legal battles," Gov. Jay Inslee said in a statement after jurors announced Tuesday they could not reach a decision on the key charges against Kelley. "Regardless of the outcome in court today, serious questions remain about Troy Kelley's ability to successfully fulfill his role as state auditor."
Kelley, a Democrat elected in 2012, is the state official charged with rooting out waste and fraud in government operations. He took a seven-month leave before returning to work in December, but has otherwise spent the past year rebuffing calls for his resignation.
He vowed to clear his name, and his lawyers said the trial's result was a big step in that direction.
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.
After deliberating for 3½ days, the jury failed to reach a decision on 14 counts, including whether Kelley possessed stolen money, laundered money, lied under oath in civil litigation or filed false income tax returns. And on the one count where they did reach a unanimous decision, they acquitted him of lying to the IRS.
Kelley hugged and kissed his quietly weeping wife after U.S. District Judge Ronald Leighton announced the results.
"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."
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 that 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 deciding.
Kelley did not comment after the verdict.
Sen. Majority Leader Mark Schoesler, R-Ritzville, called on Kelley to resign, saying the auditor's office had been "sullied" by the trial.
"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,'" said Rep. Drew Stokesbary, an Auburn Republican who co-sponsored an impeachment resolution the Legislature never acted on.
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 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 vanishingly 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 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'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.
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 defense also noted that when Kelley paid $1.1 million to a title company to settle claims that he wasn't paying the refunds, the title company only wound up refunding $171,000 to homeowners, pocketing some and spending the rest on legal fees.
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."
AP Correspondent Rachel La Corte contributed from Olympia.