New federal criminal charges against embattled State Auditor Troy Kelley contend his financial crimes continued after he was elected to statewide office in 2012.
According to a superseding indictment returned Thursday by a federal grand jury, Kelley tried to launder money and evade federal taxes as recently as March 15 — the day before federal agents raided his home, and a month before federal prosecutors filed their original 10-count indictment against him.
“The superseding indictment alleges that Mr. Kelley’s scheme continued even after his election to statewide office,” said U.S. Attorney Annette L. Hayes. “As set out in the new charges, he is alleged to have laundered money as recently as February of this year.”
Originally, the Tacoma Democrat faced 10 federal felony counts. The new indictment increases the number to 17, including new charges of money laundering and additional counts of tax evasion.
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Federal prosecutors dropped one prior charge of attempted obstruction of a civil lawsuit. That charge carried the most serious potential penalty of 20 years in prison, but the new charges of money laundering carry the same potential sentence.
Kelley maintains his innocence and faces a January trial. He took a leave of absence from his office earlier this year while the federal action proceeds.
His newly retained attorney, Angelo Calfo, said the new charges suffer from the same problem as the previous ones against Kelley, “which is the money wasn’t stolen.”
Rather, the government is pursuing criminal charges in what is just a contract dispute, Calfo said.
“They’re basically fundamentally the same charges that are based on a misguided investigation and an inaccurate set of facts,” Calfo said, calling the entire case against Kelley “a reach.”
The added money laundering charges refer to Kelley’s annual withdrawals of money from an account he used to deposit funds from his real-estate reconveyance fee business.
The fees — small individually but large in the aggregate — exceeded $1 million, court records state. They stemmed from a business Kelley ran in the 2000s which became the subject of a complex lawsuit.
The earlier indictment against Kelley referred to those actions in the context of tax evasion; alleged money laundering is the new element.
“Starting in 2011, and continuing through 2015, (Kelley) withdrew $245,000 annually from the pool containing his illicit proceeds, and, rather than pay himself directly, funneled the money through an account held in the name of his long-existing S Corporation, Blackstone,” the indictment states.
“As a result, (Kelley) made it appear that a company he long had owned earned annually some form of legitimate income, while concealing and disguising and attempting to conceal and disguise the fact that (he) was simply drawing down the accumulated proceeds he had unlawfully taken through his prior business.”
The new indictment reframes and restates earlier allegations tied to Kelley’s prior business.
It continues to state that Kelley, a former three-term state House member from Pierce County first elected in 2006, devised schemes earlier that year to defraud title companies and their borrowers.
Authorities say that from 2006-08, Kelley’s business failed to refund the companies and their customers $2.97 million above and beyond what was owed. Kelley avoided about $1 million in income taxes in those years by underreporting his income, authorities allege.
State leaders have debated Kelley’s status for much of the year, and pondered the rare prospect of impeachment proceedings, but taken no action. A spokesman for Gov. Jay Inslee said the governor’s office was still reviewing the charges and had no comment Thursday.
Calfo, the defense attorney, contended that Kelley’s public position has fueled the zeal of federal prosecutors.
“They really are just going after somebody that looks like a high-profile target,” he said. “If he wasn’t an elected state auditor, he would not have been indicted on these charges.”
Staff writer Melissa Santos contributed to this report.