Appeals court upholds conviction of former WA state auditor, further appeals possible

The Ninth U.S. Circuit Court of Appeals on Wednesday rejected an appeal by former Washington State Auditor Troy Kelley who sought to have his 2017 convictions for possession of stolen property, filing false tax returns and making false statements overturned.

Kelley was previously sentenced to one year and one day in federal prison, but has remained free while appealing his case. 

“The time has come for Troy Kelley to accept his punishment and report to custody and conclude this lengthy legal odyssey,” said U.S. Attorney Brian Moran in a statement Wednesday following the release of the ruling.

In an email, Kelley’s attorney, Angelo Calfo, said: “We’re reviewing and analyzing the decision and what it did and did not decide. We plan to explore the possibility of further appeals to the Ninth Circuit or the U.S. Supreme Court.”

Kelley’s convictions stemmed from his involvement in the real estate services industry prior to his 2012 election to the position of state auditor where he was responsible for rooting out waste, fraud and corruption in state and local governments.

Previously, Kelley was a Democratic state lawmaker from Tacoma. He also served as a lawyer in the Washington National Guard.

In upholding Kelley’s conviction, the three judge panel on the Ninth Circuit rejected his argument that he could not have stolen nearly $3 million in escrow customer fees because the money didn’t belong to those customers.

“[T]he United States provided sufficient evidence that the borrowers owned the fees,” the judges wrote in their six page ruling. “The evidence is sufficient to convict.”

The appeals court also rejected Kelley’s argument that the trial judge, Ronald Leighton, erred when he sent the jury back to continue deliberating after the jury’s foreperson indicated they were “permanently deadlocked.”

“The court’s instructions did not, as Mr. Kelley suggests, ‘blast a verdict out of the deadlocked jury,’” the judges wrote.

Two other avenues of appeal were also shot down by the court – that Kelley was subject to double jeopardy when he was retried on several counts and that the court should have split up the charges into different cases.

“Because the allegation of stolen property was valid, and the remaining counts were related to the stolen property count, the district court did not err by refusing to sever the charges,” said the judges.

Kelley’s first trial, in 2016, ended with the jury acquitting him of making false statements to the IRS and deadlocking on all the remaining charges.

In 2017, Kelley was retried and convicted on multiple counts, but also acquitted of money laundering charges. Leighton later sentenced Kelley to 366 days in prison plus one year of supervised release, far less than the 87 months in prison federal prosecutors had requested.

Questions about Kelley’s prior business dealings first arose during his 2012 campaign for state auditor. But it wasn’t until 2015, three years into his four-year term, that the public learned he was under criminal investigation.

In March of that year, while Kelley and his family were away on vacation, federal agents searched his Tacoma home. The following month, Kelley was indicted by a federal grand jury.

The case against Kelley involved his actions during the real estate bubble that preceded the Great Recession. From the early-to-late 2000s, Kelley operated the Post Closing Department, a small firm that tracked real estate transactions to make sure the previous lender cleared its interest in a title after a loan was paid off. This is known as a reconveyance.

For that work, escrow companies collected an upfront reconveyance fee, often in the range of $150, from real estate sellers and then passed that entire fee along to Kelley’s company. At trial, federal prosecutors said Kelley was entitled to keep $15 to $20 of that money as a tracking fee, but was obligated to refund the remaining funds to borrowers if that money wasn’t needed to complete the reconveyance. More often than not, it wasn’t.

According to the case against Kelley, beginning in about 2005 he stopped routinely issuing refunds and, over the next several years, pocketed approximately $3 million that prosecutors said belonged to borrowers. Later, they alleged, he used some of the money to self-fund his 2012 campaign for state auditor. 

Later, prosecutors said, Kelley sought to hide the money by moving it through a series of wire transfers and ultimately to an off-shore trust in Belize.

For his part, Kelley has always maintained his innocence while his attorneys have forcefully fought the charges. They have said the case was an example of government overreach and predicated on a misunderstanding of the law and how the industry worked at the time. In court and case filings, Kelley’s defense insisted that borrowers had relinquished their ownership rights to the money and were not owed refunds, and that Kelley had legitimately earned all of the money.

“The borrowers were not harmed because they received a service in exchange for the money that was paid,” Calfo, Kelley’s attorney, said at his 2018 sentencing hearing.

At that same hearing, prosecutors countered that Kelley exhibited a “stunning lack of acceptance of responsibility” and that accountability in his case was even more important because of his role as an attorney and a one-time elected official.

If Kelley decides to continue his appeal efforts, he could ask the entire 9th Circuit to review his case or seek to have the case considered by the U.S. Supreme Court.

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