Trial for indicted Washington auditor comes to a close

AP News
|
Posted: Apr 20, 2016 10:57 PM
Trial for indicted Washington auditor comes to a close

TACOMA, Wash. (AP) — The five-week fraud trial of Washington State Auditor Troy Kelley drew to a close Wednesday, with prosecutors calling it a "plain case of fraud and a cover-up" and the defense team describing it as a "disaster."

"Someone who has done nothing wrong does not need an elaborate cover-up," Assistant U.S. Attorney Katheryn Kim Frierson told jurors during her closing argument. "He did the things only those who know they are guilty do."

Kelley, the first Washington state official indicted in 35 years, stands accused of illegally pocketing $3 million in fees prosecutors say he should have refunded to homeowners when he ran a real-estate services business called Post Closing Department during the height of the housing boom before he was elected state auditor.

His trial featured testimony from former employees, including Jason Jerue, who told jurors that Kelley ordered him to falsify documents to hide that the company wasn't paying the refunds. Frierson told jurors that Kelley's actions also included moving money among various accounts to hide the proceeds, asking Jerue to destroy company records, 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.

One of Kelley's attorneys, 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."

Kelley, a lawyer himself who has taught tax law courses, faces 15 counts in all, including money laundering and tax evasion.

The charges date to 2005, seven years before Kelley was elected state auditor, a position that entails rooting out waste and fraud in public agencies. His company tracked escrow paperwork for title companies.

Prosecutors say to obtain business from the title companies — and get access to vast sums of money from homeowners — he 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 refunded the balance only when title companies began asking uncomfortable questions or when homeowners were savvy enough to demand it, prosecutors said, adding that Kelley amassed about $3 million and eventually began paying himself $245,000 a year from the proceeds.

"He lied to get that money and he kept it," another prosecutor, Andrew Friedman, said during the government's rebuttal argument. "That's fraud, and that's theft."

But Calfo hammered away at the notion the money was stolen. The title companies that Kelley contracted with didn't take the position that homeowners were entitled to the refunds, he argued. No one promised they would get their money back. And when they signed their escrow documents, they voluntarily transferred the fees to Kelley, who then had the right to control the money, Calfo said.

"The government cannot prove beyond a reasonable doubt that this was stolen money," Calfo said.

Calfo also attacked the government's assertions that Kelley tried to conceal the money by moving it among different accounts. Moving money between his own accounts is not money laundering, Calfo said, and when IRS agents came knocking three years ago, Kelley told them exactly which accounts the money was in and where it came from.

The case boils down to a contract dispute that never should have been prosecuted criminally, Kelley's attorneys have argued, and while Kelley did refund some homeowners who complained, that was nothing more than good customer service akin to the generous return policy at Seattle-based Nordstrom department stores.

Frierson scoffed at that notion in her closing.

"What these refunds are not is some Nordstrom-like policy," she said. "This is simply Mr. Kelley quieting a squeaky wheel so he can continue with his scheme."

The most serious charge against Kelley is money laundering, which carries a maximum of up to 20 years in prison. Kelley would be expected to face much less prison time than that if he's convicted.

Jury deliberations begin Thursday.

Kelley, a Democrat, has refused to resign, but his lawyers say he won't seek re-election.