Federal prosecutors led off their opening statement in State Auditor Troy Kelley’s trial Tuesday by describing a road trip.
For the jury weighing Kelley’s guilt or innocence, it was a potentially accessible introduction to a complicated and esoteric tale of transactions in the real-estate industry.
Assistant U.S. Attorney Andrew Friedman described how Kelley, his wife and kids drove to scenic spots like Yellowstone and Glacier national parks in the summer of 2011. Friedman said Kelley declared that trip on his taxes as a series of business deductions.
Kelley deducted the cost of hotel stays and family meals, Friedman said: “He even deducted the cost of gasoline for the trip.”
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Friedman said that trip and tens of thousands of dollars in other personal expenses were the final stage in a yearslong scheme by Kelley to steal and hide $3 million of other people’s money.
Kelley’s defense said no money was stolen or hidden and that prosecutors’ focus on deductions that took place years after Kelley’s alleged thefts underscores what’s wrong with the case.
Defense attorneys have said as trial approached that the case strings together loosely connected allegations to create a picture in the jury’s mind that Kelley is dishonest.
Patty Eakes, who delivered the opening statement for the defense, said some tax deductions can be taken for expenses on a family vacation if work is done during the trip. She said Kelley may have reported some deductions in the wrong locations on tax forms.
“The fact that you make a mistake on your taxes isn’t criminal,” Eakes said.
The statements by Friedman and Eakes followed a day and a half spent narrowing down a pool of about 80 people to 12 jurors and two alternates.
The case involves fees of $100 or more that were charged to people selling or refinancing their homes between 2006 and 2008.
Kelley’s former business, Post Closing Department, ended up with those fees. His company tracked records after the home sales closed to make sure ownership was recorded properly.
“They paid him for a service. He performed the service that they paid him for,” Eakes said.
That service was vital to make sure the ownership of the home or responsibility for the mortgage wouldn’t be in dispute later, Eakes said. If a dispute did come up, Kelley could be on the hook. Taking on legal responsibility was one of the services he provided, Eakes said.
Prosecutors contend Kelley had told escrow companies he would charge a flat $15 or $20 to track deeds and refund the rest of the fee to a homeowner — but that he wrote just 82 refund checks out of some 20,000 transactions.
“He pocketed the money,” Friedman said. “He stole that money $100 at a time from tens of thousands of borrowers.”
Statements like that one prompted Kelley’s attorney, Angelo Calfo, to ask U.S. District Judge Ronald Leighton to declare a mistrial.
With jurors out of the courtroom, Calfo contended prosecutors have changed their story about whether the money belonged to title companies or borrowers. The defense is “getting whipsawed,” he said.
Prosecutors have said they don’t need to prove whose money it was, only that it didn’t belong to Kelley.
Leighton rejected the mistrial motion.
Once Kelley had the money, prosecutors say he hid at least $1.4 million from the Internal Revenue Service and homeowners who sued escrow companies to try to get their money back. He shuffled the money through a series of accounts, they say.
Many of the 16 felony counts Kelley faces relate to alleged concealment, including money laundering and making false declarations.
Eakes said Kelley never hid money. She said he held it separately as an insurance policy against liability and disclosed it in several ways.
She said he paid taxes on the money after he resolved a title company’s lawsuit against him and started withdrawing it in installments of $245,000 a year.
Friedman said Kelley took deductions — including for tennis lessons, a zoo membership, and toys and books for his kids — to make those withdrawals look legitimate and to reduce his tax burden.
Eakes described Kelley to jurors as a family man and coach of his two sons’ teams who has volunteered for military service and public service.
A lieutenant colonel in the National Guard, the Tacoma Democrat served in the state House before his 2012 election as auditor.
“He won’t be running for any re-election again,” Eakes said. “This case has been the end of his political career.”