State auditor indicted; governor, attorney general, others call on him to resign

SEATTLE — Washington State Auditor Troy Kelley pleaded not guilty Thursday to federal charges of filing false tax returns, attempted obstruction and possession of stolen property.

A grand jury indictment unsealed Thursday accused him of various misdeeds in connection with mortgage title services companies he ran before his election in 2012.

Federal prosecutors say he kept more than $1 million that should have been refunded to customers and that he unlawfully avoided paying taxes by claiming personal or campaign expenses were business-related.

Kelley was dressed in a navy suit and flanked by his attorneys as he appeared Thursday afternoon for his arraignment at U.S. District Court in Tacoma.

As the state auditor, he's charged with rooting out government fraud and abuse.

According to the indictment, between 2003 and 2008 Kelley operated a business that was paid by real estate title companies. Kelley allegedly had agreements with those companies for fees he could change in connection with document-tracking work. Kelley allegedly kept money from transactions with the companies, resulting in more than $2 million in stolen money.

Furthermore, the indictment alleges the state auditor failed to pay federal taxes and obstructed IRS in its efforts to collect taxes from him.

Speculation has been swirling around Kelley, a Democrat elected in 2012, since federal agents searched his home last month. Kelley has insisted he did nothing wrong. He released the following statement after the indictment.

Kelley announced he will take a temporary leave of absence from his office starting May 1.

However, Gov. Jay Inslee, also a Democrat, issued a statement shortly after the indictment was announced that called on Kelley to resign immediately.

“This indictment today makes it clear to me that Troy Kelley cannot continue as state auditor. He should resign immediately,” Inslee said. “An appointee can restore confidence in the office and assure the public that the Office of the State Auditor will operate at the high standards required of the post.”

State Attorney General Bob Ferguson, also a Democrat, later joined Inslee in calling on Kelley to resign.

"The many dedicated career public servants who staff the State Auditor’s Office should be able to perform their important work free of the cloud of uncertainty and distraction the Auditor’s situation now creates," Ferguson said.

"The sooner that cloud is lifted, the better.  That’s why I am calling upon Troy Kelley to resign as auditor immediately," Ferguson said.