Defense Moves For Mistrial During Opening Arguments In Troy Kelley Trial

Mar 15, 2016

A defense attorney for Washington State Auditor Troy Kelley moved for a mistrial moments after a federal prosecutor had concluded his opening statement in the money laundering and tax evasion trial against Kelley.

The judge in the case, Ronald Leighton, denied the motion. But it provided a dramatic courtroom moment at the outset to a trial that's expected to last more than four weeks and marks the first time since the early 1980s that a top elected official in Washington has been at the center of a federal criminal indictment.

The charges against Kelley, a first-term Democrat, stem from his previous work in the real estate services industry and span the years 2005 to 2015. Kelley, who was elected state auditor in 2012 and previously served as a state lawmaker, is accused of amassing more than $3 million in homeowner fees that should have been refunded, scheming to hide the money and failing to pay all taxes on the money.

‘A 10 year scheme'

"He lied to get the money, he hid the money and ultimately he lied on his tax returns to launder it," assistant U.S. Attorney Andrew Friedman told the jury of 9 men and 5 women during his opening statement.

Friedman began his opening statement by telling the jury about a family trip Kelley took with his wife and two sons in the summer of 2011 to Yellowstone and Glacier National Parks and Mt. Rushmore. At the end of that year, according to Friedman, Kelley wrote-off the expenses from that two-week trip as business-related expenditures for tax purposes.

"He even deducted the cost of the gasoline for that trip," Friedman said. The reason for those deductions, according to Friedman, was that Kelley was trying to make it look like he was still running a business even though he wasn't.

"It was the final stage of a 10 year scheme," Friedman told the jury.

During the early to late 2000s Kelley was in the reconveyance tracking business. His company, the Post Closing Department, contracted with title and escrow companies to ensure that lenders cleared their interest in a property after a sale or refinance. The Post Closing Department typically collected $100 to $150 in the form of an upfront fee paid by the seller at closing.

At issue in the trial is whether Kelley was obligated to refund most of that money, minus a small tracking fee of $15 to $20, in cases when the lender cleared title without Kelley's company having to intervene and pay trustee and recording fees.

Friedman told the jury that 20,000 homeowners should have gotten refunds, but that Kelley only issued refunds to 82 of them -- what Friedman called "the squeaky wheels" who demanded a refund.

‘This case isn't about theft and it isn't about a fraud'

As Friedman presented his opening statement, Kelley sat between his lawyers taking notes on a yellow legal pad.

When Friedman concluded after more than an hour, defense attorney Angelo Calfo made his surprise motion for a mistrial. Calfo argued to the judge that Friedman had failed to identify who the victims are in this case. "The government needs to tell us and tell the Court and be straight with the Court who Mr. Kelley stole this money from," Calfo argued.

"The motion for mistrial is denied," Judge Leighton ruled after hearing brief arguments from both sides.

In its opening statement, the defense argued that the government's theory of the case is just that, a theory.

"This case isn't about theft and it isn't about a fraud, it's about fees people pay everyday when they sell a house," defense attorney Patty Eakes told the jurors.

Eakes proceeded to take the jury through a lengthy and elaborate visual slide presentation during which she sought to undermine each aspect of the government's case.

She said the money Kelley is alleged to have stolen was a fee for service that homeowners willingly paid with no expectation of a refund. "At the point that they paid it, they gave up ownership," Eakes said.

Eakes told the jury that this case boils down to a contract dispute based on "vague" agreements from a decade or more ago -- some of which don't exist in their final form all these years later.

Millions in fees and big business deductions

As for why Kelley amassed millions in reconveyance fees in three business accounts, Eakes said that money was "a sort of back-up insurance policy" in case there was ever a claim against the Post Closing Department for its handling of a reconveyance.

Eakes said Kelley did move to protect the money from "class action lawyers" after lawsuits were filed against some of his clients in 2008. That, she said, explains why he hired an asset protection lawyer and moved the funds through a series of accounts, ultimately parking the money in an account linked to a trust in Belize.

"It's a red herring," Eakes said of the Belizean trust which never received any money.

As to the allegation that Kelley took illegal business deductions, Eakes told the jurors the evidence would show that the expenses Kelley claimed were legitimate, although he may have made mistakes on some of his tax filings.

"The fact you make a mistake on your taxes isn't criminal," Eakes told the jurors.

Family man or fraudster?

As Eakes spoke, Kelley's wife, a college professor, watched from the gallery.

At the end of her opening statement, Eakes gave the jury a brief biographical sketch of Kelley. She portrayed him as a family man who coaches his sons' sports teams and devoted public servant who serves in the National Guard. She accused the government of bending to "political pressure" to get an indictment.

"He's not a liar, he's not a cheater, he didn't steal anything, he didn't cheat on his taxes, he didn't launder any money," Eakes said, noting that even if he is acquitted Kelley's political career is over.

The trial will resume Wednesday morning with the first government witnesses. They are expected to include a borrower who didn't receive a refund and personnel from Fidelity National Title.