Washington State Auditor Troy Kelley indicted on tax-evasion; says he will take leave

SEATTLE -- Washington State Auditor Troy Kelley has been indicted by a federal grand jury on charges of filing false tax returns, obstruction of justice and possession of stolen property.

The grand jury returned the indictment Wednesday, and it was unsealed Thursday. Kelley is scheduled to appear at U.S. District Court in Tacoma at 2:30 p.m. Thursday.

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, and announced he will hold a news conference at 4 p.m. Thursday.

“I am obviously disappointed that the U.S. Attorney’s office has taken this action. I believe the indictment has no merit and want to note that none of the allegations touch on my work as an elected official in any way.

“For the past few years, I have been the subject of an intense investigation by the federal government about my private business practices going back more than ten years. While never confronting me with specific allegations – or the basis for those allegations – they have probed and prodded, seemingly moving from one aspect of my former career to another. Presumably they have used the secret grand jury process to construct a case against me, questioning dozens of witnesses and examining every aspect of my professional life until they could weave together an ill-conceived narrative from which to base the charges.

“In the end, they’ve been able to obtain an indictment, but they are a long way from proving any wrongdoing. Put more directly, I am very confident that I will be able to prove my innocence. 

“The government’s allegations revolve largely around agreements and dealings I had with other private businesses. In my mind, those issues should be handled through civil litigation between the parties. In fact, many of the issues brought forth by the government were addressed – and settled – years ago.  My business practices in my work around real estate and reconveyance were squarely in line with standard industry practices.

“I filed annual tax returns with the IRS on a timely basis, in adherence to the law, disclosing the existence of the funds that are a central part of the government’s case. I have been paying taxes on those funds long before the government’s interest in this case.

“The last two years have been extraordinarily difficult for my family and me. My constituents, friends and coworkers have all called for me to address the allegations and rumors surrounding the government’s investigation, but since the government has never disclosed the specifics of its allegations to me, I could not. I hope everyone now understands why I remained silent. Now that the U.S. Attorney has made the investigation public, I am determined to fight back.  Our system recognizes the power of judges and juries to sort fact from fiction, and I have confidence that this unbiased process will vindicate me.

“Beginning May 1st, I will take a temporary leave of absence from my duties as Washington State Auditor to allow my office to continue to do its important work without distraction. I fully intend to resume my duties after I put these legal matters to rest.”

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

Gov. Jay Inslee said Thursday that the auditor should 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.”

This story is breaking and will be updated as more information becomes available.