The judge calls it “an elaborate chess match.”
Now Troy Kelley has a chance at a counterattack.
Federal prosecutors have used multiple strategies to put the Washington state auditor in check. In one move, they charged him with felony white-collar crimes. In another, they seized more than $900,000 Kelley could have used to pay his defense attorneys.
The cash likely couldn’t have been taken using laws on criminal forfeiture, U.S. District Judge Ronald Leighton said. So prosecutors turned to civil forfeiture.
Legal procedures governing civil cases allowed prosecutors with a magistrate judge’s permission to grab the money Sept. 8 before Kelley could protest. It gave them the chance to deploy a new legal theory: that Kelley laundered money in 2008 — too long ago to be charged in the criminal case.
“From the outset, the government’s tactics present due process concerns,” Leighton wrote.
Leighton sided with Kelley last week by ordering a hearing on the seized money. It’s set for Dec. 1 and Dec. 2, more than three months before Kelley is due to go to trial on charges including more recent money laundering and tax evasion.
The judge says he wouldn’t get in the way of the chess moves, but would make sure the auditor gets a chance to convince him the money should be returned.
The central issue is a $3.6 million bank transfer Kelley made on June 27, 2008. At the time, he was a state House Democrat representing southwest Pierce County whose business tracking real-estate title documents was folding amid accusations in just-filed lawsuits.
Kelley moved the money from a Nevada account into a Pennsylvania account he opened in the name of a company that was 99 percent owned by a Belize-based trust that Kelley controlled.
Prosecutors say Kelley made the transfer to conceal the proceeds of at least $1.46 million in fees that he had illegally kept instead of refunding them to homeowners.
Kelley withdrew money from the account over the years until finally emptying it last March, when he paid $908,000 as a retainer for law firm Davis Wright Tremaine to hold in trust. His then-attorney promised the court in May after Kelley’s indictment that the firm wouldn’t touch the money.
Among the disputes that could be hashed out at the December hearing:
▪ Whether the alleged money laundering tainted all of the money in the account, as prosecutors contend. Kelley’s new defense attorney, Angelo Calfo, argues it didn’t and that the allegedly stolen money was long gone by the time Kelley paid for legal representation.
▪ Whether the money was out of reach of prosecutors even under the looser standards of civil forfeiture.
▪ The credibility of an FBI accountant who traced the money. The FBI acknowledged the accountant was being investigated over tax deductions, which Calfo says shows he’s “in need of the government’s good graces and likely lacking judgment on matters of tax evasion and deductible expenses.” Calfo wants to question the accountant about his conclusions.
Prosecutors say the accountant’s problems are “collateral issues” that were disclosed to U.S. Magistrate Judge Brian Tsuchida before he granted the FBI request to seize the money.