New indictment adds charges against Washington state auditor

AP News
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Posted: Sep 03, 2015 8:56 PM

SEATTLE (AP) — A new indictment from a federal grand jury on Thursday added money laundering and tax evasion counts to a long list of charges against Washington State Auditor Troy Kelley, who has been on unpaid leave while fighting allegations that he stole more than $1 million from clients of his former business.

The new charges cover actions Kelley allegedly took from 2011 to this year, while he was in office, and say that Kelley laundered money by withdrawing $245,000 annually from a pool of ill-gotten gains. In the new indictment prosecutors also dropped one charge — an allegation that Kelley attempted to obstruct a civil lawsuit.

Angelo Calfo, who took over this week as Kelley's attorney, said Thursday afternoon that his client will plead not guilty. Kelley's arraignment on the new charges is expected next week at U.S. District Court in Tacoma.

"It's lipstick on a pig," Calfo said. "These are the same fundamentally misguided allegations with a different coat of paint. Troy is going to prove that he's innocent."

Kelley, a 50-year-old Democrat from Tacoma, is a former state representative who was elected in 2012 to be Washington's auditor — the state official charged with rooting out waste and fraud in government operations. He previously ran a company called Post Closing Department, which worked with escrow and mortgage title companies to track real estate transactions. According to investigators, the company kept fees that it was supposed to refund to customers — 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. Four of the charges against Kelley allege he lied in sworn declarations in that case to avoid blame.

Early this year, federal agents searched his home and subpoenaed the auditor's office for records. Days later, Kelley wrote a $447,000 check to the U.S. Treasury Department, noting in the subject line that it would cover future tax debts, investigators said.

He was first indicted in April and charged with 10 felony counts. The new indictment charges him with 17, including five counts of the most serious charge, money laundering, which carries up to 20 years in prison. The other charges include possession of stolen property and filing false income tax returns.

The government is also seeking to have Kelley turn over $1.4 million in what it described as stolen money, including $908,397 he transferred to the Seattle law firm Davis Wright Tremaine on March 26, the same day he was first informed he was likely to be indicted, prosecutors said.

Calfo, a well-known white collar criminal defense attorney in Seattle, notified the court this week that he was representing Kelley. Kelley's prior lawyers at Davis Wright Tremaine filed a motion to withdraw from the case earlier Thursday. No explanation for the change was given in court documents.