Prosecutor: Troy Kelley engaged in a ‘plain case of fraud’

The case of indicted Washington State Auditor Troy Kelley is a “plain case of fraud and a cover-up,” a federal prosecutor told jurors Wednesday during closing arguments at Kelley’s trial.

“Someone who has done nothing wrong does not need an elaborate cover-up,” Assistant U.S. Attorney Katheryn Kim Frierson said. “He did the things only those who know they are guilty do.”

Kelley, the first Washington state official indicted in 35 years, stands accused of illegally pocketing $3 million in fees prosecutors say he should have refunded to homeowners when he ran a real-estate services business called Post Closing Department during the height of the housing boom before he was elected state auditor.

His trial has lasted more than five weeks and featured testimony from his former employee, Jason Jerue, who told jurors that Kelley ordered him to falsify documents to hide that he wasn’t paying the refunds.

Frierson told jurors that Kelley’s actions also included moving money among various accounts to hide the proceeds, trying to pay off a homeowner who filed a lawsuit over the retained fees, and lying in civil litigation as well as on his taxes.

Kelley faces 15 counts in all, including money laundering and tax evasion. U.S. District Judge Ronald Leighton dismissed a false statements count against him on Tuesday.

The charges date to 2005, seven years before Kelley was elected state auditor, a position that entails rooting out waste and fraud in public agencies. His company tracked escrow paperwork for title companies.

Prosecutors say to obtain business from the title companies — and get access to vast sums of money from homeowners — he promised that Post Closing Department would collect $100 to $150 for each transaction it tracked; keep $15 or $20 for itself; use some of the money to pay county recording and other fees if necessary; and refund the customer any remaining money.

In tens of thousands of cases, the additional fees were not needed, but Kelley refunded the balance only when title companies began asking uncomfortable questions or when homeowners were savvy enough to demand it, prosecutors said.

Kelley’s attorneys, Angelo Calfo and Patty Eakes, insist that the homeowners were never promised refunds, and therefore no one was harmed by Kelley’s actions — even if they might have been unethical business practices.

The case boils down to a contract dispute that never should have been prosecuted criminally, they say, and while Kelley did refund some homeowners who complained, that was nothing more than good customer service, akin to the generous return policy at Seattle-based Nordstrom department stores.

Frierson scoffed at that notion in her closing.

“What these refunds are not is some Nordstrom-like policy,” she said. “This is simply Mr. Kelley quieting a squeaky wheel so he can continue with his scheme.”

The defense team’s closing argument was expected later Wednesday. Each side had two hours to address the jury.

The most serious charge against Kelley is money laundering, which carries a maximum of up to 20 years in prison. Kelley would be expected to face much less prison time than that if he’s convicted.

Kelley, a Democrat, has refused to resign, but his lawyers say he won’t seek re-election.

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