Jury deadlocks over tax-evasion charges against Washington state auditor

SEATTLE A jury did not convict Washington state’s auditor on money-laundering and tax-evasion charges on Tuesday in a blow to federal prosecutors who argued that the Democrat had “spun a web of lies” to avoid paying taxes and defraud thousands of homeowners.

The jury in Tacoma also acquitted Troy Kelley, 51, of a single charge of making a false statement to IRS agents in April 2013 after about four days of deliberation following more than five weeks of trial.

“This is the first step toward vindication for him,” Angelo Calfo, a defense attorney for Kelley, said by telephone.

The criminal allegations against Kelley focus on his former document-tracking business for title companies during real estate sales and refinancing transactions in which he is accused of pocketing roughly $3 million in fees that should have been returned to borrowers from at least 2003 to 2008.

A grand jury indicted Kelley, a Democrat elected in 2012, a year ago for his alleged scheme to keep stolen money and hide it from both the Internal Revenue Service and those due a refund for home purchases or mortgage refinancings.

Among the charges Kelley faced was one count of possession and concealment of stolen property related to processing fees that should have been returned to borrowers.

He also faced charges of failing to pay federal taxes, obstructing related IRS collections, money laundering, attempted obstruction of a civil lawsuit, and filing false income tax returns.

It was not immediately clear what would happen with the remaining charges, Calfo said. Federal prosecutors could seek to re-try the case, or the judge could grant Kelley’s motion to dismiss the charges, he said.

After a grand jury indicted Kelley last year, U.S. Attorney Annette Hayes said that he “spun a web of lies in an effort to avoid paying his taxes and keep more than a million dollars that he knew did not belong to him, but instead should have been returned to thousands of homeowners across this state.”

Hayes said in a statement on Tuesday that her office “will thoroughly review the counts that the jury deadlocked on before making a decision about our next steps in this case.”

A judge blocked a recall effort as Kelley fought the charges and he took a leave of absence to prepare his defense. Washington state Governor Jay Inslee, a fellow Democrat, has called for Kelley’s resignation.

(Reporting by Eric M. Johnson in Seattle; Editing by Bernard Orr)

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