Troy Kelley Guilty Of Possession Of Stolen Property, Not Guilty Of Money Laundering

Dec 20, 2017

Former Washington State Auditor Troy Kelley has been found guilty of possession of stolen property, making false declarations and filing false tax returns, but not guilty of money laundering.

The verdict came at the end of Kelley’s second trial on federal charges related to his past real estate services business.

This story has been updated

Kelley's first trial, in April 2016, ended with the jury finding him not guilty of making a false statement to the IRS and deadlocking on the remaining counts.

The decision follows nearly two days of jury deliberations and a trial that took 21 days. Of the 14 charges against him, Kelley was convicted on nine and acquitted on five.

Kelley showed no emotion as the verdict was read. Afterwards he hugged his wife who was in the courtroom. Kelley’s attorney Angelo Calfo immediately moved to have the verdicts thrown out for lack of sufficient evidence. The judge denied that motion.

Outside the courtroom, Calfo said Kelley and his wife are "devastated" by the verdict and he plans to appeal.

"This was not a case that should have been brought and the jury obviously struggled with its decision," Calfo said in a later statement, noting the jury had sent notes to the judge during deliberations indicating it was deadlocked on some counts. "We will do whatever we can to overturn these verdicts because an injustice has taken place."

Assistant U.S. Attorney Andrew Friedman, who led the prosecution, said Kelley "was keeping money that wasn't his to keep" and that the verdict sends a message that "you can't take advantage of innocent victims."

In a statement, U.S. Attorney Annette Hayes commended investigators, prosecutors and the jury. "Troy Kelley stole money from thousands of homeowners, then tried to hide it by passing it through a variety of accounts--ultimately he committed tax fraud to try to hide the theft and keep as much of the ill-gotten gains as he could," Hayes said. 

One of the 12 jurors, who declined to give his name, called the evidence "overwhelming" and said Kelley's actions "spoke for themselves." 

"At the end the conviction was it was not his money to keep," said the juror who also acknowledged it was "extremely" hard for the jury to reach a unanimous guilty verdict.  

The charges centered on “reconveyance fees” which are levied when a lender clears its interest in a piece of real estate after a loan is paid in full. During the pre-recession housing boom, prior to becoming state auditor, Kelly operated a company called the Post Closing Department that contracted with title and escrow companies to track reconveyances to make sure they were recorded.

Kelley was charged with pocketing millions of dollars in reconveyance fees that should have been refunded to homeowners, seeking to conceal the money and avoid paying taxes on it.

Federal prosecutors alleged Kelley was obligated to issue homeowner refunds in cases where the lender completed the reconveyance, but instead usually kept the money in violation of his agreements with Fidelity National Title and Old Republic Title.

Once class action lawsuits were filed against the industry in 2008 over un-refunded reconveyance fees, Kelley was accused of shuttering his business and taking steps to conceal more than $3 million he had amassed by moving the money through a series of rapid bank transfers. The money was parked in a Vanguard account in Pennsylvania that Kelley ultimately linked to an off-shore trust in Belize, although he never moved any money there. Kelley’s defense maintained he was lawfully protecting his assets against frivolous lawsuits.

In 2011, Kelley settled a lawsuit filed against him by his former client Old Republic Title for more than $1 million. After that, he started drawing down the remaining funds in $245,000 annual installments and paying taxes on the money.

In his first trial, Kelley’s defense argued that homeowners gave up their rights to the reconveyance fees when they signed their closing statements and that Kelley had no obligation to refund the fees. They also asserted that he had adopted a lawful accounting method that allowed him to realize the money as income over time and pay taxes on it then.

Kelley's sentencing is scheduled for March 30. Possession of stolen property is punishable by up to 10 years in prison, according to the U.S. Attorney's office. False declarations can bring five years and the maximum sentence for filing false tax returns is three years.