Federal authorities have to give State Auditor Troy Kelley his money back.
U.S. District Judge Ronald Leighton ordered prosecutors Thursday to entrust to Kelley’s defense attorney the $908,000 they seized from Kelley’s previous law firm.
“A pretrial seizure of property is an extraordinary step and it challenges our fundamental belief in a person being deemed innocent until proven guilty,” Leighton said.
Leighton made the ruling near the close of a three-day hearing that left the charges against Kelley largely intact. He denied a request by the defense to separate the counts into multiple cases that would have complicated his prosecution.
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The judge worried aloud, however, that either way he ruled on the seized money would influence a jury at Kelley’s trial in March on charges including keeping stolen money, tax evasion and money laundering.
Once Leighton telegraphed his intentions, prosecutors conceded they don’t need to hold the money — as long as Kelley’s attorney, Angelo Calfo, is ordered not to spend it.
Leighton then ordered the money returned but frozen until further notice.
Calfo said he would formally ask the judge to allow him to use part of the money — up to $350,000 — on Kelley’s defense.
“Mr. Kelley has no intention of taking all of that money and running off with it,” Calfo said. Of prosecutors, he said, “they’re outspending us by five times. I think we’re entitled to that money.”
Leighton’s decision had the potential to clearly show the strength or weakness of prosecutors’ case as they tried to establish probable cause that Kelley laundered money.
But the judge didn’t rule on whether prosecutors hit that mark. Instead he focused on what seizing the money would say to potential jurors. He told prosecutors: “You may well be right, but being right sometimes isn’t enough.”
At the root of the case is the accusation that Kelley stole money when his former business tracking real-estate documents kept fees rather than refund them to homeowners. But similar practices elsewhere in the title and escrow industry and unclear ownership of the fees could complicate that contention.
The hearing was, in Leighton’s words, a “dress rehearsal” for the trial. Just two witnesses testified: an FBI agent who investigated Kelley and an FBI accountant who traced his money.
The FBI accountant, Gary Beisheim, had to answer questions about his own legal troubles.
Prosecutors have disclosed he was audited over deductions on his 2012 taxes. He conceded he made an improper estimate on a deduction for a meeting at home with his wife while they worked together in a consulting business. He is appealing Internal Revenue Service findings related to his other deductions.
Kelley too is accused of taking improper tax deductions.
Beisheim said he’s also a witness in another criminal case. Payments by his former law firm to a Chicago lawyer are at issue in the prosecution of that lawyer on a charge of tax evasion. Beisheim made the payments as controller for the firm. He said he raised concerns that the payments might be illegal but then made the payments at the direction of the firm’s managers.
Kelley, a Tacoma Democrat, is on unpaid leave as auditor.
He faces a 16-count indictment after Leighton combined two charges into one.