Washington State Auditor indicted for federal income tax evasion and more

Troy X. Kelley, Washington State Auditor has been indicted for federal income tax evasion, lying to investigators, concealing millions of dollars, and making repeated false statements.  Governor Jay Inslee wants Mr. Kelley to resign but Mr. Kelley said he plans to go on leave instead. A Democrat and former state legislator, Mr. Kelley was elected the state’s auditor in 2012.

In a prepared statement he said the federal indictment has “no merit,” and that:

none of the allegations touch on my work as an elected official in any way. They’ve been able to obtain an indictment, but they are a long way from proving any wrongdoing. Put more directly, I am very confident that I will be able to prove my innocence.

The indictment alleges that, Mr. Kelley owned and operated a business called Post Closing Department. It was paid by real estate companies to track and file mortgage and refinancing documents. The real estate companies would withhold up to $150 for Post Closing, but Post Closing was only to charge approximately $20 per transaction. The balance was supposed to be refunded to buyers. In most of cases, though, the indictment claims that Mr. Kelley kept the entire fee, which the indictment says, is large, about $2 million.  Mr. Kelley was sued by Old Republic Title, which alleged Post Closing had stolen nearly $1.2 million from its customers. That lawsuit was settled confidentially in May 2011.

The indictment states that Mr. Kelley paid Old Republic $1,050,000 to settle, but that he “maintained approximately $2,581,653 of the funds he had concealed” from the IRS. The indictment also says  Mr. Kelley had a similar scheme with Fidelity Title.

Mr. Kelley is also charged with corrupt interference of IRS laws, two counts of filing false income-tax returns, and a single count of lying to IRS agents who questioned him in April 2013, a few months after his election as state auditor. The indictment alleges that Mr. Kelley directed employees to create fake spreadsheets to show fees being tracked, and occasionally issued refunds when someone complained.

Jeffrey Newman represents whistleblowers