State Auditor Troy Kelley was indicted by a federal grand jury on charges of concealing stolen property, lying to federal investigators, filing false tax returns and "corrupt interference with Internal Revenue laws."
The 10-count indictment, handed down by a grand jury in Seattle, calls for Kelley to forfeit more than $1 million he allegedly collected between June 2008 and January 2012. The money was allegedly taken through fraud schemes involving two title companies.
Kelley, a Democrat, released a statement saying he was "disappointed" by the indictment and will take a temporary leave of absence beginning May 1.
"I believe this indictment has no merit and want to note that none of the allegations touch on my work as an elected official in any way," he said. "I fully intend to resume my duties after I put these legal matters to rest."
Within minutes of the announcement, Gov. Jay Inslee, a fellow Democrat, called for Kelley to step down immediately from the office he won in the 2012 election.
"The indictment today makes it clear to me that Troy Kelley cannot continue as auditor," Inslee said in a written statement. "An appointee can restore confidence in the office and assure the public the Office of State Auditor can operate at the high standards required of the post."
State Treasurer Jim McIntyre, also a Democrat, echoed Inslee's call, saying Kelley "cannot continue in his role as auditor and should resign immediately."
In the Legislature, House Democratic Leader Pat Sullivan and Senate Democratic Leader Sharon Nelson also called for Kelley to step down.
"If he doesn't, we'll have further conversations," Sullivan, of Covington, said. One possibility would be an impeachment, which would start in the House. Sullivan said staff attorneys are looking into that possibility but no decision has been made.
"My understanding is that has never happened in the state of Washington," he said.
House Republican Leader Dan Kristiansen was critical of Kelley's plan to take what could be an extended leave of absence, describing it as "not what I would call a good faith decision." But he added Kelley still has the presumption of innocence, even though he's been charged.
The indictment alleges a scheme that developed when Kelley was operating a "reconveyance-tracking" service to title insurance companies, promising to administer escrow money for real estate purchases and refund the unused portions of the escrow to borrowers. Kelley and his company was entrusted with millions of dollars in reconveyance fees, the indictment charges, but didn't return all of the money to borrowers.
Instead he "fraudulently retained, stole and converted" $1,463,171 that should have been refunded to borrowers.
In 2008, borrowers sued the two title companies seeking the return of reconveyance fees. The indictment alleges that Kelley then tried to conceal the money he had retained by moving it rapidly between different bank accounts until it eventually wound up in a shell company he owned. One of the title companies, Old Republic, sued Kelley in 2009 for the return of the fees, and he lied in sworn depositions for the lawsuit, the indictment alleges in five separate counts.
Kelley also "engaged in a long-running scheme to avoid and reduce his taxes on the unlawfully retained reconveyance fees," the indictment charges. He under-reported income in 2006 and 2008; in 2011 and 2012, he sought to reduce the income he was reporting from the shell company by fraudulently claiming campaign expenditures that were not legitimate business deductions, the indictment says.
In his statement, Kelley said the federal government has "probed and prodded" his private business dealings over some 10 years and used the grand jury process to question every aspect of his professional life "until they could weave together an ill-conceived narrative from which to base the charges."
They have an indictment, but are far from proving wrongdoing, he said: "I am very confident that I will be able to prove my innocence."
In 2012, Kelley was elected state auditor -- overseeing other government agencies and offices to determine whether they are following all federal and state laws and proper accounting practices.
The indictment said that when IRS agents interviewed him in April 2013, which would be four months after he took office, he lied about his income for 2011 and 2012.
Kelley was not in his office on the Capitol Campus this morning, office spokesman Thomas Shapley said, and the office had no comment on the indictment.
"This has to do with previous activities, before he was elected," Shapley said.
Doug Cochrane, Kelley's chief of staff, was in the office and "we're just going to keep on doing our work," Shapley said.
Kelley scheduled a press conference for 4 p.m. in Tacoma.
(c)2015 The Spokesman-Review (Spokane, Wash.)
