Politics & Government

Who is the real Troy Kelley? Even political colleagues unsure

He projected a spit-polished image that sold well politically: a dedicated family man who served his country, a successful lawyer and businessman eager to lead.

In the span of six years, Troy Kelley rose from political obscurity to statewide office, capturing a series of state House campaign victories on his way to winning election as Washington’s auditor — a post dedicated to rooting out waste and fraud in state government.

Boosted by a sterling résumé, with stops at the Department of Justice and a Fortune 500 company, Kelley, a Democrat from Tacoma, came off as an articulate, well-groomed political moderate with the means to bankroll his own campaigns.

“I believe in serving our country, so I joined the Army reserves,” Kelley, 50, told voters in one TV campaign spot. “I believe in justice, so I worked for the federal prosecutor. I believe in the American dream, so I started a small business.”

But the campaign-massaged image of the man who became state auditor stands in sharp contrast to the one a federal grand jury described in charging papers last week as a scheming thief, liar and tax dodger.

In a 10-count, 41-page indictment returned Thursday, Kelley is alleged to have stolen millions of dollars in processing fees from home sales while handling mortgage and financing paperwork during the height of last decade’s real-estate boom. He has pleaded not guilty.

The indictment — the first in memory against a statewide elected official in Washington — led Gov. Jay Inslee and many others to call for Kelley’s resignation. Kelley so far has said he will take a leave of absence, starting May 1.

Following his arraignment Thursday, Kelley vehemently denied the allegations during a news conference at a downtown Tacoma hotel. Looking weary, he portrayed himself as the victim of a Kafkaesque prosecution.

“For the past few years, I have been the subject of an intense and expensive investigation by the government about my business practices going back more than 10 years,” Kelley said. “While never confronting me with specific allegations or the basis for those allegations, they seemingly moved from one aspect of my career to another.”

Federal agents scoured his past to weave together “an ill-conceived narrative” to obtain an indictment, said Kelley, who has declined interview requests. “I am very confident, very confident, that I will be able to prove my innocence.”

Over the past few weeks, as details of the federal probe into Kelley’s business activities became public, the image he sought to portray as an upright leader has been further damaged by descriptions of him as a secretive, absentee official whose Democratic colleagues say they really knew little about.

As the criminal case plays out, a central question persists: Who is the real Troy Kelley?

Fresh start in Tacoma

Kelley arrived in Washington fresh off being fired.

It was 2000, and Kelley, then in his mid-30s, had parted ways acrimoniously from First American Title Insurance in California, where he’d worked as general counsel.

The company said Kelley was let go because of downsizing, but in a wrongful-termination suit, he claimed he was fired for being a whistleblower about wrongful company actions.

Executives later accused Kelley of having his “hand in the cookie jar,” and of moving without permission into a gated mansion that had been repossessed by First American. Kelley dropped his claim after company lawyers won a motion that would have allowed them to explore allegations Kelley stole artwork from a company office following his firing.

By then, Kelley’s wife, Diane Kelley, had taken a job as a French studies professor at the University of Puget Sound. The couple settled into a new home in Tacoma to raise two children.

Within two years, Kelley started several companies, including Blackstone International, a holding company for corporate income set up in Nevada, and United National, a firm that handled mortgage and financing paperwork for real estate and that operated under the name Post Closing Department.

Dee Lamb, who first worked as a temporary title agent for Kelley in the early 2000s, recalled her boss as fair and someone who cared about performance.

“I loved the man,” said Lamb, 67. “He was an incredible boss — probably because he left me alone and let me do my work.”

Political newcomer

With Kelley’s companies expanding, he turned to politics in Pierce County.

Debi Srail, a Democratic Party activist in the 28th Legislative District during the mid-2000s, recalled that Kelley “sort of just dropped in, and nobody really knew who he was or what he was doing.”

“He had never come to a meeting, he’d never been a part of the party,” Srail said. “He just sort of showed up one day and wanted to run.”

But Kelley quickly made an impression, some activists said.

Then a major in the Army Reserve, Kelley touted his experience as a business executive, working for a federal prosecutor in New York and as a lawyer for the Securities & Exchange Commission. On the campaign trail, he also talked about doing pro bono work that helped military families and others buy their first homes.

“Given his strong military background, he seemed like a good fit” for Pierce County’s more conservative 28th District, said Bill Baarsma, a two-term Tacoma mayor and former Pierce County Democratic Party chairman.

The 28th District includes a small part of Tacoma and runs south to Lakewood, University Place and Joint Base Lewis-McChord.

“He didn’t get the central committee’s endorsement, but the few times I talked with him, I came away impressed,” Baarsma added. “He also seemed to be a candidate that had his own financial resources.”

Kelley had spent years as a judge advocate general at the Army JAG school as a member of the Army Reserve.

In his first bid for a 28th District state House seat in 2006, Kelley spent twice as much money as his Republican opponent, dumping $58,350 of his own money into the race. He won by three percentage points and was re-elected twice.

During his time in Olympia, Kelley further bolstered his résumé. He chaired the Joint Legislative Audit Review Committee, which conducts audits and studies for the Legislature. He won various awards, including that of Washington Council of Police & Sheriffs Legislator of the Year.

Still, many of his fellow Democrats say they didn’t know him well. Connie Ladenburg, a Tacoma Democrat who represented the 29th District in the House, shared a district office with Kelley and other area representatives, but said she rarely saw him.

“I saw his assistant, but not Troy that much,” Ladenburg said.

Longtime state auditor Brian Sonntag said he didn’t know Kelley well, either.

“He was just a quiet guy who seemed to go about his job,” Sonntag said. “Didn’t ruffle feathers and seemed to go along with folks and, frankly, supported the work of the Auditor’s Office.”

Million-dollar dispute

Behind the scenes, even while a state legislator, Kelley was raking in a fortune, capitalizing on a niche in the runaway mortgage industry at the height of the real-estate boom of the 2000s.

He was doing that through what the federal indictment last week described as a corrupt scheme to defraud unwitting business customers and homebuyers.

Kelley’s company, Post Closing Department, was hired by real-estate title companies to track and file mortgage and refinancing documents. The companies withheld up to $150 from a borrower’s transaction and gave it to Post Closing to be used for fees. But in most cases the fees were not actually charged, meaning Kelley’s company was supposed to keep $20 and refund the rest.

Instead, as described in the federal indictment, Kelley usually kept the entire amount. In 2008, as lawsuits started to fly throughout the industry, Kelley shut down his company and shifted profits through multiple bank accounts in what prosecutors said was an effort to evade taxes.

Many of the allegations were first raised in a lawsuit brought by Old Republic Title, one of Kelley’s major customers. The lawsuit, filed in state court in late 2009, was moved to federal court in 2010.

Scott Smith, attorney for Old Republic, said he understands why Kelley made an attractive political candidate, just as he seemed like a reliable business partner.

“On paper, he’s a really impressive guy. You trusted him. The title companies trusted him to do what he said he was going to do, which was refund the money,” he said.

Old Republic contended Kelley had stolen $1.2 million through the wrongful withholdings, while also lying and hiding evidence.

Kelley repeatedly claimed he was entitled to keep the money in dispute, but that records proving it had been destroyed in a fire or erased from glitchy computers. The federal indictment charges Kelley with lying in depositions and in sworn declarations to the court during the lawsuit.

Kelley resolved the case with Old Republic in 2011 with a confidential settlement.

A year later, when he ran for auditor, Kelley’s business dealings came to light when allegations from the lawsuit were publicized in multiple news stories after being raised by Republican candidate James Watkins.

Kelley downplayed the allegations as a routine business dispute, but he refused to divulge how much he paid to settle the case. Last week’s indictment revealed he’d paid Old Republic more than $1 million — close to the entire amount in dispute.

Overlooked by voters

In the end, the lawsuit’s claims didn’t resonate with voters. Kelley’s 2012 campaign for auditor outspent Watkins nearly 6 to 1, and he used almost $500,000 of his own money in the race. Watkins on Friday blamed Democratic Party leaders and the media for letting Kelley off easy.

But state Sen. Mark Miloscia, R-Federal Way, who ran in the primary for auditor that year as a Democrat, said Kelley’s money simply overwhelmed everyone else in the race. Although the business dispute was publicized, “it’s different than having the federal government investigating you, which nobody knew at the time.”

During the campaign, Kelley also attracted some high-profile endorsements. Sonntag, a fellow Tacoma Democrat, issued statements backing Kelley’s integrity. He won with 53 percent of the vote.

But by then, federal investigators had latched on to the allegations against Kelley. On April 19, 2013, IRS agents interviewed Kelley in Olympia, demanding explanations for some of his business and income-tax filings. The indictment alleges Kelley lied to the agents during the interview.

Perhaps because of the cloud hanging over him, Kelley has kept a low profile as auditor.

Rob Kavanaugh, a citizen watchdog, says he couldn’t get a meeting with Kelley.

“He doesn’t deal with regular people, which is sad,” Kavanaugh said. “I used to have all kinds of access to Brian Sonntag, but nobody’s ever had access to Troy Kelley, as far as I can tell. He won’t talk to us mere mortals.”

On a recent visit to Kelley’s office, Kavanaugh said he complained to an office assistant about Kelley’s lack of availability.

“She said, ‘Well, he’s secretive. He’s a very secretive person,’ ” Kavanaugh recalled. “And I said, ‘You can’t be a public state officeholder and just go and hide.’ ”

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