The attorney for indicted Washington State Auditor Troy Kelley aggressively sought to undermine the case against his client during a pretrial hearing in Tacoma.
In the first day of the two-day hearing, Kelley’s attorney, Angelo Calfo, said this was the first time since Kelley was indicted in April that “anyone has cross-examined the government’s theory about stolen funds.”
Kelley is accused of unlawfully retaining homeowner fees that were forwarded to his former real estate services company, the Post Closing Department, by title and escrow companies.
The hearing is to determine whether federal investigators overstepped when they obtained a warrant to seize $908,000 that Kelley had entrusted to his previous attorney’s law firm. Kelley is seeking to get that money back. He is also asking a judge to split up his 17-count indictment and dismiss some of the charges against him.
Calfo told the judge that he believed at the end of the hearing the court would conclude, “[the feds] do not have a viable theory of possession of stolen property.”
Calfo also described the case as a “contract dispute” and said there are no victims. He mocked charges of money laundering against Kelley, noting that Kelley moved funds between accounts and companies he owned.
“That’s not money laundering. That’s money transferring,” said Calfo, adding that he believed the statute of limitations had run out on the money laundering charges.
Stolen Property Charge
After opening statements the lead FBI agent on the case, Michael Brown, took the stand. Under questioning by Assistant U.S. Attorney Andrew Friedman, Brown laid the foundation for the charge of possession of stolen property.
Brown testified that between 2006 and 2008 Kelley unlawfully retained millions of dollars in excess homeowner fees that he was obligated to refund. At the time Kelley was a Democratic state lawmaker from Tacoma.
Title and escrow companies contracted with Kelley’s company to ensure that after a loan was paid off the previous lender cleared its interest in the property. This is known as a reconveyance. Federal prosecutors maintain Kelley was entitled to a small reconveyance tracking fee of $15 to $20, but instead often pocketed the entire reconveyance fee collected at closing. That fee included funds to pay a third party trustee and county recording fee, if necessary. Prosecutors maintain those extra funds were rarely needed because lenders usually processed the reconveyance.
At one point Calfo was allowed to challenge agent Brown’s testimony.
Calfo asked, “Can you name a title company that returned reconveyance fees to borrowers?”
“I believe Old Republic did,” Brown replied.
When Brown couldn’t come up with any other examples, Calfo interjected. “There are none, are there?”
“I don’t know that,” said Brown.
Prosecutor Friedman followed up by getting agent Brown to confirm that it was his understanding that many title companies refunded reconveyance fees occasionally.
Lengthy Cross-Examination
Later, on formal cross-examination, Calfo grilled Agent Brown about the assumptions that underly the case. Calfo sought to show that Kelley had no contractual obligation to refund homebuyers and that it was industry practice not to routinely issue refunds.
In often uncomfortable exchanges, the agent struggled to answer Calfo’s questions about who Kelley’s victims were, under what circumstances Kelley was obligated to refund fees and whether homeowners had any expectation of a refund.
“Where is the provision in the agreement that describes the obligation to refund … and under what conditions,” Calfo demanded to know after introducing into evidence the agreement Kelley had with Old Republic Title to track reconveyances. After a long pause, the agent pointed to a reference to refunds in the agreement, but no specific language.
Calfo also got the agent to acknowledge that no homeowners had ever directly sued Kelley seeking to obtain a refund for reconveyance fees paid.
Witnesses And Credibility
Earlier testimony included references to a mysterious figure in the Kelley case--Jason Jerue, the vice president of the Post Closing Department whom Kelley later hired to work for the state auditor’s office as a part-time employee based in California. Washington Attorney General Bob Ferguson is investigating Kelley’s hiring of Jerue.
FBI agent Brown testified that Jerue told investigators that Kelley called him after several class action lawsuits were filed in 2008 against title companies over the handling of reconveyance fees. According to the agent, Kelley wanted Jerue to research the lead plaintiff in the lawsuit against Fidelity National Title, one of Post Closing’s clients, and determine if he was due a refund. The indictment alleges Kelley later issued a refund to that lead plaintiff, Frank Cornelius, in an effort to “discredit and disqualify” him as a plaintiff. Previously Kelley maintained he didn’t send the refund check.
At one point Calfo got agent Brown to confirm the FBI tried to pull a fingerprint from a deposit slip to try to prove Kelley conducted the transaction, but the results were inconclusive.
During the hearing Kelley sat between his attorneys taking notes on a yellow pad and referring to a thick binder of court exhibits in front of him.
Prosecutors also intend to call a forensic accountant who has done an analysis of the funds Kelley is alleged to have stolen. That accountant’s credibility has been called into question by the defense after prosecutors revealed he is being audited by the IRS and was interviewed in connection with a separate federal criminal investigation involving his former employer. Prosecutors, in court filings, say they’re confident the court will find the accountant is a credible witness.
The defense has not indicated it plans to call its own witnesses. However, it has submitted an exhibit list. The first item on that list is a recently published Northwest News Network story about Kelley titled “He Got Rich And Rose Fast. Then He Fell Hard.”
In addition to possession of stolen funds and money laundering Kelley is also charged with making false statements and filing false tax returns. His attorney is arguing those charges should be tried separately.
Kelley has pleaded not guilty to all charges and is on an indefinite leave from his role as state auditor.
Copyright 2015 Northwest News Network
