Authorities have seized $908,000 that state Auditor Troy Kelley paid as a retainer to his former defense attorneys.
Federal prosecutors say Kelley stole the money from title companies and their customers when he ran a business tracking real estate documents.
Kelley faces charges that include tax evasion and money laundering. He maintains his innocence and has asked to delay his January trial until March.
U.S. Magistrate Judge Brian Tsuchida ordered the money seized in a warrant executed Tuesday by FBI special agent Michael Brown.
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The money paid to a trust account of law firm Davis Wright Tremaine is “traceable to property involved in a money laundering transaction” involving at least $1.4 million in stolen money, Brown wrote in an affidavit Sept. 2, a day before a federal grand jury issued a new indictment of Kelley.
Brown disclosed in the same paperwork that the FBI accountant who analyzed Kelley’s financial records is being audited by the Internal Revenue Service over questions about his 2012 tax filing.
Kelley’s new attorney, Angelo Calfo, called for the trial postponement until March in a court filing Wednesday that cited the revised indictment, change of lawyers and seized money. He said the court would need to hold a hearing on whether seizing the money was proper.
In another development in the case, prosecutors say Kelley found several ways to pay a former employee long after Kelley’s business folded, including one “concealed” payment.
The federal investigation revealed this year that Kelley had placed former employee Jason JeRue on the state payroll after taking office as auditor in 2013.
Prosecutors wrote in a Wednesday court filing that the money was part of “substantial financial support” Kelley provided over the years to JeRue, whose name sometimes is spelled “Jerue.”
After closing his business in 2008, Kelley employed JeRue until 2009 through a separate company, prosecutors said, then wrote him a check in September 2011 for $9,980.
In 2012, Kelley wrote another check for $9,985 — writing this one out to JeRue’s mother “rather than pay Mr. Jerue directly,” prosecutors said.
“Throughout the government’s investigation, Mr. Jerue has characterized the payments in 2011 and 2012 as a type of severance due him as a result of his prior employment with Mr. Kelley,” prosecutors wrote.
“According to Mr. Jerue, the second payment was funneled through his mother in an effort to hide the money from Mr. Jerue’s wife.”
Prosecutors note the payments came during and after the time Kelley was embroiled in a series of lawsuits. The first check came after Kelley settled a suit by title company Old Republic by paying what prosecutors say was more than $1 million.
Old Republic had tried to compel JeRue to testify in the suit, but couldn’t find him.
Now prosecutors say they are likely to call JeRue to testify in Kelley’s trial.
As operations manager and vice president of Kelley’s Post Closing Department from 2005 to 2008, JeRue was an “eye witness” to business practices at the heart of the case against Kelley, prosecutors wrote.
Their filing Wednesday asks the court to investigate whether Kelley’s new attorney, Calfo, has a conflict of interest because he represented JeRue’s mother last year when she answered questions from federal investigators.
Prosecutors made a similar inquiry about Kelley’s previous attorney before dropping the matter.
“I think it’s a routine inquiry and I expect the court will resolve it promptly,” Calfo said.
JeRue’s hiring and employment at the Auditor’s Office is the subject of a separate state criminal investigation.
Kelley is on indefinite, unpaid leave as auditor. He named as acting auditor Jan Jutte, who fired JeRue upon taking over.