Federal authorities’ case against State Auditor Troy Kelley was tested in court for the first time Tuesday.
An FBI agent walked through the evidence, then faced questioning that showed one of the difficulties for the prosecution. Kelley is accused of taking money belonging to homeowners, but the promises he made about that money were to third-party companies.
The hearing is due to continue Wednesday (Dec. 2) and U.S. District Judge Ronald Leighton could rule on whether authorities were right to seize $908,000 of Kelley’s money. Kelley sought the hearing to get the money back.
Kelley’s trial is set for March on felony charges that include keeping stolen money, avoiding taxes and money laundering, all related to his former business in the real-estate industry.
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The first-term Tacoma Democrat is on unpaid leave as auditor.
Kelley’s company tracked records of title ownership for title companies Old Republic and Fidelity, which passed fees from homeowners to his company. Prosecutors say he was supposed to keep a fraction of the fees and, if not needed to pay third parties, refund the rest to homeowners.
“That was not his money, and he was supposed to return (it), based on his representations,” FBI Special Agent Michael Brown testified.
Defense attorney Angelo Calfo said the money wasn’t stolen and pressed Brown on who had a right to the money and why.
“In order to steal money, you have to steal it from somebody, don’t you think?” Calfo said. “Can you tell me who he stole the money from?”
Brown replied that Kelley should have returned the money to the borrowers who paid the fees at the closing of a home sale or refinancing.
Calfo wanted to know whether borrowers were told at the closings that they would receive refunds.
“I’m not specifically aware of written representations,” Brown said.
However, Brown said homeowners were told verbally during at least some closings that they would receive refunds, including by employees of the title companies.
Homeowners sued the title companies in 2008 trying to get their money back, and Calfo noted that judges stopped the lawsuits without finding any responsibility by title companies. He also noted that no homeowner sued Kelley.
Calfo asked about whether it was common practice in the industry to give refunds. Brown said Old Republic and a smaller title company issued refunds in at least some cases.
Kelley said under oath during a civil lawsuit that now-missing spreadsheets tracked extra portions of the fees he kept and why; Brown testified that in interviews Kelley’s former employees denied keeping such records.
After homeowners sued the title companies, Kelley moved $3.6 million through a series of bank accounts, ending up in the Pennsylvania account of a company 99 percent owned by a Belize-based trust that Kelley controlled. The money never moved overseas.
Prosecutors allege the moves aimed to conceal the proceeds of at least $1.46 million in illegally retained fees.
But Calfo said: “That’s not money laundering. That’s money transfer.”
An FBI accountant who traced the money is scheduled to testify on the hearing’s second day.
Jordan Schrader: 360-786-1826