Ownership of money uncertain in Troy Kelley case

An FBI agent investigating State Auditor Troy Kelley wrapped up testimony Wednesday without entirely clearing up uncertainty about whose money the FBI believes Kelley stole.

But authorities said all that must be proved to convict Kelley is that he didn’t have a right to the money.

A hearing Tuesday and Wednesday could be a preview of a March trial for Kelley on white-collar felony charges including keeping more than $1 million in stolen money, money laundering and tax evasion.

The case centers on fees charged during home sales, often exceeding $100. Three parties play a role: Borrowers — or homeowners — who paid the fee, title companies that charged the fee to track documents showing ownership of the home, and Kelley’s former company, which received the fee from title companies that contracted the tracking work out to him.

Prosecutors say Kelley told two title companies he would take a cut of $15 or $20, pay any charges required, and refund the rest to borrowers. They say he didn’t issue refunds in most cases.

Kelley’s defense attorney, Angelo Calfo, pressed FBI Special Agent Michael Brown over two days on ownership of the money. Brown repeated Wednesday that the money belonged to the borrowers: “That is their money.”

But he also said it was stolen from both borrowers and title companies. And he said available records don’t match each borrower to what he or she was owed.

“We could not determine who had legal right to what,” Brown said.

Prodded by Assistant U.S. Attorney Andrew Friedman, though, Brown said authorities aren’t required to prove whose money it was, only that it wasn’t Kelley’s.

Friedman gave Brown the example of a bank robber who takes money on the counter between a teller and a customer. There’s some uncertainty about whether it’s the customer’s money or the bank’s money, but what’s important, the two agreed, is that it isn’t the bank robber’s money.

Calfo sought to discredit the prosecutors’ case by suggesting Kelley’s practices mirrored common practice in the real-estate industry.

Kelley’s wasn’t the only company scrutinized for not paying refunds. Lawsuits filed on behalf of homeowners alleged that all the major title companies owed refunds that were never sent.

Those lawsuits were dismissed after struggling to establish that the title companies were required to give refunds.

But Friedman argued the facts are different in the criminal case against Kelley because he entered contracts calling for set fees and told the title companies he would charge only those fees. One draft of a contract calls for refunds, although the contracts don’t spell out details about the refunds.

At first, Brown didn’t dispute Calfo’s contention that large title companies didn’t regularly give refunds. But Friedman later brought up one of the lawsuits, against Chicago Title, in which evidence pointed to a stated policy of providing refunds.

Brown said industry practices differed.

An FBI accountant who traced Kelley’s money testified after Brown and could continue into a third day of the hearing.

The court proceeding opened a small window into pressure the FBI faced in investigating a sitting state auditor.

Calfo confronted FBI accountant Gary Beisheim with messages he had written describing unspecified time pressure from then-U.S. Attorney Jenny Durkan and how four assistant U.S. attorneys were “breathing down our necks.”

The pressure may be unsurprising in the rare-for-Washington prosecution of a public official.

“It wasn’t a political consideration on the part of the (assistant U.S. attorneys) or us, just that he was a public figure, an elected public figure,” Beisheim replied.

Durkan was a Democratic appointee.

Judge Ronald Leighton ordered the hearing after Kelley challenged authorities’ seizure of $908,000 Kelley had paid his former attorneys as a retainer.

Kelley, a Tacoma Democrat, is on unpaid leave as auditor.

This story was originally published December 2, 2015 at 7:55 AM with the headline "Ownership of money uncertain in Troy Kelley case."